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The employment picture in the United States remains cloudy, as total payroll employment grew by only 96,000 in August. For the first eight months of this year, employment gains are averaging 9% lower than in the same period of the previous year. While the dark clouds remain over Europe and fears abound about the Chinese growth slowdown, a rebound in employment growth in the U.S. could help the economy crawl out of the current soft patch. Once it happens, improvement in the employment picture will likely bode well for the general merchandise retailers. The higher investor confidence and the upward thrust of the markets suggest that higher-end retailers are likely to benefit as well.

There are several high-quality retail stocks that pay attractive dividend yields. Generally, high-quality stocks have a sustained earnings power and dividend growth over a number of years. Income investors seeking exposure to the broad retail sector should consider investing in the stocks of retailers with high-quality rankings. We focus on four such stocks, including those with an exposure to the high-end retail market. The selection includes Mattel Inc. (NASDAQ:MAT), Hasbro Inc. (NASDAQ:HAS), Tiffany & Co. (NYSE:TIF), and Nordstrom (NYSE:JWN). On average, these four stocks pay a dividend yield of 2.9% on a payout ratio of 45%. Here is a closer look at their fundamentals and valuations.

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Mattel Inc.

This $12-billion company manufactures and sells children's toys. Over the past five years, the company's EPS and dividends grew at average rates of 7.3% and 12.3% per year, respectively. Analysts forecast that Mattel's EPS will grow at an average annual rate of 8.4% for the next five years. The stock is a good growth and income play. Mattel posted exceptionally strong second-quarter results, which prompted analysts to revise upward their EPS estimates for this year and next. Earlier this year, the company boosted its quarterly dividend by 35%, well above its average for the past five years. The stock is currently yielding 3.6% on a payout ratio of 56%. Mattel's management aims to achieve a 50%-to-60% payout ratio in the coming period. For the reference, Mattel's peers Hasbro and JAKKS Pacific (NASDAQ:JAKK) have dividend yields of 3.9% and 2.5%, respectively. Mattel's stock has a free cash flow yield of 2.2%, ROE of 30.3%, and ROIC of 20.7%. In terms of valuation, on a forward P/E basis, the stock is trading at a significant discount relative to the toys industry and below its own five-year average ratio. Fund manager Phill Gross (Adage Capital-check out its top holdings) holds a small stake in the company.

Hasbro Inc.

This is another retailer of children's toys and games. It has a market cap of $5 billion. Over the past half decade, its EPS grew at an average rate of 16.9% per year, while its dividends rose at an average annual rate of 18.7%. Analysts expect that the company's EPS will expand at a somewhat smaller average annual rate of 8% for the next five years. While the company's revenues suffered in the most recent quarter, growth in the second half is likely to be supported by strong product line-up, growing emerging-market presence, and strategic tie-ups, according to Zacks Investment Research. Hasbro is a good income play. It offers a dividend yield of 3.9%. Its payout ratio is 54%. Hasbro's competitors Mattel Inc. and JAKKS Pacific offer lower dividend yields. The company has a free cash flow yield of 4.2%, ROE of 24.5%, and ROIC of 12.5%. In terms of forward valuation, the stock has a forward P/E well below that of its industry. For comparison, Hasbro's forward P/E is trading at a small discount to Mattel's. Moreover, Hasbro's forward P/E is lower than its five-year average ratio. Fund managers Tom Russo (Gardner, Russo, & Gardner), Cliff Asness and Ken Griffin all hold stakes in the stock.

Tiffany & Co.

The high-end jewelry retailer has a market cap of $8 billion. It saw its EPS grow at an average rate of 10.8% per year over the past five years, while its dividend increased at an average annual rate of 23.2% per year. This makes it a good dividend growth play. The company's EPS is expected to expand at an average rate of 12.7% per year for the next five years. The stock is expected to benefit from improvements in consumer sentiment and the market performance. While the weakness in Europe and North America has weighed on the jeweler's sales, strong performance in Japan has helped mitigate the adverse developments. While the company has lowered sales and profit outlook for this year, the targets are still more upbeat than generally expected. This jewelry retailer pays a dividend yield of 2.2% on a payout ratio of 37%. Its peers Signet Jewelers Limited (NYSE:SIG) pays a dividend yield of 1.0%, while competitors Blue Nile, Inc. (NASDAQ:NILE) and Zale Corporation (NYSE:ZLC) do not pay any dividends. The stock has a ROE of 18.6% and ROIC of 13.9%. The stock is undervalued relative to its historical metrics. Fund manager Robert Joseph Caruso (Select Equity Group-check out its top picks) holds the largest stake among fund managers.

Nordstrom Inc.

This department store retailer has a market cap of $12 billion. Its EPS expanded at a relatively low average rate of 4.2% per year over the past five years, while its dividends grew at a high annual rate of 15.2% per year. Analysts forecast Nordstrom's EPS growth accelerating to an average of 12.1% per year for the next five years. Nordstrom same-store sales were exceptionally strong in August, rising 21%, boosted by a later Anniversary Sale. The company also beat analysts' expectations on the second-quarter EPS. Management recently upped its fiscal year 2012 EPS guidance. Nordstrom has a dividend yield of 1.9%. Its payout ratio is 34%. Its main competitors Bloomingdales and Neiman Marcus are closely held, Saks Incorporated (NYSE:SKS) does not pay dividends, while peers Macy's Inc. (NYSE:M) and Dillard's (NYSE:DDS) pay dividend yields of 2.0% and 0.3%, respectively. The stock has a free cash flow yield of 3.0%, ROE of 35%, and ROIC of 13.4%. On a forward P/E basis, the stock is trading on par with the apparel retailers. With more than $218 million invested in the stock, billionaire Steve Cohen is bullish about the stock.

Source: 4 High-Quality Retailers For Dividend Income