Some consumer discretionary stocks may be well positioned to take advantage of a recovering economy while offering an attractive dividend yield. However, many consumer discretionary stocks have been battered over the past couple years as consumers closed their wallets.
The analysis was conducted by screening through stocks within in the sector and limiting the selections to stocks with a greater than 1% dividend yield. There are 512 consumer discretionary companies. Of these companies, only 118 have a dividend yield at .1% or higher. The maximum yield at 11.6% for World Wrestling Entertainment, Inc. (WWE).
This analysis is limited by the stock screening tool that I used and one clear issue is that the dividends were not completely current in all cases. Cross referencing the Zacks.com tool against Yahoo!Finance showed discrepancies between some of the smaller stocks.
|Ticker||Name||Price||Dividend Yield (%)||Equity Market Cap $ Millions|
|WWE||World Wrestling Entertainment, Inc.||$ 12.17||11.8||$ 900|
|CHKE||Cherokee Inc.||$ 17.04||8.9||$ 152|
|RGC||Regal Entertainment Group||$ 13.70||5.3||$ 2,114|
|CPY||CPI Corporation||$ 20.58||4.9||$ 151|
|LEG||Leggett and Platt||$ 23.02||4.7||$ 3,371|
|CNK||Cinemark Holdings||$ 18.90||4.4||$ 2,144|
|HRB||H&R Block, Inc.||$ 13.93||4.3||$ 4,250|
|SJR||Shaw Communications, Inc.||$ 21.50||4.1||$ 8,855|
|RRST||RRSat Global Communications Net||$ 7.43||4.0||$ 129|
|RCI||Rogers Communications Inc.||$ 35.20||3.6||$ 15,705|
|NTRI||NutriSystem Inc.||$ 19.87||3.5||$ 531|
|KOSS||Koss Corp.||$ 7.00||3.4||$ 52|
|VIRC||Virco Manufacturing Corp||$ 2.92||3.4||$ 41|
|DDE||Dover Downs Gaming and Entertainment, Inc.||$ 3.56||3.4||$ 115|
|MAT||Mattel Inc.||$ 25.31||3.3||$ 9,082|
Data provided by Zacks.com services as of February 16, 2011.
The first observations is that several of these stocks have quite low market capitalizations and so might appear to have high dividend yields due to declining share prices. After reviewing the companies, other discrepancies arose, including that CHKE's dividend has been reduced over the past couple years and the Yahoo!Finance yield shows it at 4.7%. Other tickers from Zacks.com that were manually screened out include Middleton Doll (MDLL), Television Broadcast (TVBCY), and Emerson Radio Inc. (MSN).
The 394 companies that did not pay dividends had a combined market capitalization of about $382 billion. The 118 companies with dividends had a combined market capitalization of $871 billion.
The second screen was to select companies with lower valuations and ensuring reasonable metrics across other valuation metrics. There is not point to purchasing a 5% dividend only to watch the price decline by 10%, or worse yet go to $0 per share. A rapidly declining stock price could simply result in a high dividend yield based on historical dividends being used. General criteria include:
Low valuation as measured by Price to Operating Cash Flow (< 15x)
A growing stock as measured by 5 Year Historical Revenue Growth (>1%)
Good asset productivity as measured by 5 year average Return on Assets (>3%)
Market capitalization of sufficient size (>$300 million)
From this data a final ranking of the top 10 was determined subjectively and few stocks were considered that did not meet all the criteria. It is important to note that while these criteria suggest reasonable stock valuations and prospects, additional issues such as business environment, management strategy, and other less quantifiable issues should be considered.
|Ticker||Name||Last Close||Div. Yield %||5 Yr Historical Sales Growth||Price/ Cash Flow||ROA (5 Yr Avg)|
|SJR||Shaw Communications, Inc.||21.5||4.1||13.2||6.5||5.3|
|RCI||Rogers Communications Inc.||35.2||3.6||12.9||5.6||7.0|
|MCS||The Marcus Corporation||11.94||2.9||6.6||7.2||3.0|
|BOOT||Lacrosse Footwear Inc.||17.8||2.8||8.4||13.7||7.9|
|ASCA||Ameristar Casinos, Inc.||16.91||2.5||4.7||6.5||3.6|
|CTCM||CTC Media, Inc.||22.18||2.0||7.4||10.8||17.9|
|GES||Guess ? Inc.||46.45||1.7||21.2||13.9||17.1|
Data provided by Zacks.com services as of February 16, 2011. Stock prices are of market close on February 15, 2011.
HRB and MAT had lower sales growth than the target level and BOOT had a lower market capitalization than the target level.
These stocks represent a possible way to play the economic recovery while providing some current income; however, based on a review of many of the stocks, this is probably not the best way to seek dividends. Many of these companies face industry challenges beyond the general economic environment and are often have significant short interests.
Some stocks were discarded due to large short ratios indicating bearish sentiments. These companies included NTRI, STRA, CNK, WWE, and RGC. Theater companies Cinemark and Regal both have significant short interest and challenges within their industry. However, it should be noted that Netflix (NFLX), with a high short ratio, continues to climb higher. The significant short positions may result in near term gains if the shorts are forced to cover. Other stocks such as Polaris Industries (PII) have had very strong recent performances which might have attracted short interest based on their valuations.
As always, additional analysis should be completed prior to making any investment decision. These stocks certainly require fundamental analysis to assess whether their dividends are sustainable.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.