One trend that appears to be impacting the profitability of some retailers is showrooming and the subsequent online sales that go along with it.
Consumers are becoming more and more savvy with their purchases and want to get the best value for their hard earned cash. One method for them to do that, is to make their purchases online instead of from local retailers, even if they went to the local store to check the item out first.
Buy Local Retailers with Anti-Showrooming Merchandise
One way to insulate your investment portfolio from this potentially negative trend is to invest in retailers that sell merchandise that meets some of the following criteria:
- Perishable Products (milk, bread, produce, meat and frozen foods).
- Staple items with low profit margins (canned goods, snack foods, and personal care items).
- Merchandise that consumers like to try on before purchase (clothing, eyewear, and footwear).
- Bulky items that are hard to ship (washing machines, water heaters, and lumber).
- Items that fill an immediate need (auto repair, home repair, tools and medication).
- Items that need customization before purchase (paint).
I believe that these five stocks, when purchased at the right price, offer the dividend income investor a way to capture the retail sector's dividend growth without the implicit risk that comes from negative emerging trends, such as showrooming.
Family Dollar Stores (FDO)
Family Dollar is a national discount store chain with over 7,500 locations throughout the US. It offers a variety of low-priced merchandise, including food, clothing, housewares, and tobacco products.
Family Dollar has a long and strong history of dividend growth going back over 36 years, with its most recent dividend increase being over 23%.
Current Price: $58.37
52-Week Range: $52.35 - $74.24
Current P/E: 16.26
Forward P/E: 13.06
Annual Dividend: $1.04
Payout Ratio: 28.9%
Market Cap: $6.76 Billion
Kohl's Corporation (KSS)
The Kohl's Corporation currently operates over 1,100 department stores in the US. Kohl's is well known for its strong promotional activity, using coupons and customer loyalty programs on clothing, housewares, footwear and more.
The company has demonstrated some dividend growth over the last two years, with an initial annual dividend rate of $1.00 in 2011, increasing to the current annual rate of $1.28.
On a personal note, I've seen the power of Kohl's promotions in my own household. It seems like every time a Kohl's coupon book arrives in the mail, my wife and daughter are off to Kohl's to see what they can find on sale.
Current Price: $43.83
52-Week Range: $41.35 - $54.86
Current P/E: 10.08
Forward P/E: 9.55
Annual Dividend: $1.28
Payout Ratio: 27.54%
Market Cap: $10.08 Billion
I hold 50 shares of Kohl's with a cost basis of $42.24 per share in my dividend income portfolio.
Lowe's Companies (LOW)
Lowe's is one member of the prominent duo of home improvement retailers in the US. Home Depot (HD) is Lowe's nearest competitor. It has more than 1,700 locations throughout North America, selling appliances, lumber, paint, tools and other home improvement supplies.
Lowe's also has a strong history of dividend growth with 50 years of dividend increases.
Current Price: $36.99
52-Week Range: $24.64 - $37.08
Current P/E: 22.02
Forward P/E: 17.78
Annual Dividend: $0.64
Payout Ratio: 35.62%
Market Cap: $41.60 Billion
Target Corporation (TGT)
Target is another large North American retailer that operates over 1,700 stores in the US. It has a loyal customer following with strong demand for many of its unique brands of clothing and housewares.
The history of dividend growth for Target has been strong as well, with 45 years of dividend growth in place.
Current Price: $61.53
52-Week Range: $47.65 - $65.42
Current P/E: 13.64
Forward P/E: 12.71
Annual Dividend: $1.44
Payout Ratio: 27.63%
Market Cap: $40.04 Billion
Wal-Mart is an international retailer with over 10,000 locations in 27 countries. It meets the needs of many families everyday with its low-priced selections of food, clothing, housewares, and personal care items.
Wal-Mart is a dividend growth stock with 38 years of dividend increases.
Current Price: $69.20
52-Week Range: $56.17 - $77.18
Current P/E: 14.24
Forward P/E: 12.86
Annual Dividend: $1.59
Payout Ratio: 31.79%
Market Cap: $231.49 Billion
I hold 23.4005 shares of Wal-Mart with a cost basis of $58.73 per share in my dividend income portfolio.
Financial data sourced from Finviz.com. Dividend growth histories sourced from David Fish's U.S. Dividend Champions Spreadsheet. Current price reflects stock price at the time this article was written.