Four Retail Stocks Offering Solid Dividend Yields and Safe Payout Ratios
By: Emily Mirabelli,
Four retail stocks offering solid dividend yields and safe payout ratios are part of an industry that has been ravished financially by the COVID-19 crisis, causing the temporary closure of nearly all non-grocery brick-and-mortar stores.
The following four retail stocks offering solid dividends have been able to stay afloat but still sustain safe payouts amid the financial fallout. These companies pay dividends that often still maintain substantial liquidity to survive economic downturns, such as the current one.
Another positive with companies that pay a dividend is that they are a good choice for long-term investors. Such investors like to own shares of stocks that not only pay a dividend but also offer strong potential for price appreciation.
Measuring Stock Safety Through the Payout Ratio
One way for investors to gauge the safety of a stock, especially during a volatile time, is through its dividend payout ratio, which shows the percentage of earnings paid as dividends.
Stocks with a very high dividend payout ratio are often seen as risky, even though they tend to have the largest payout. The higher the dividend payout ratio, the worse the risk if things go wrong for a company.
If a company begins to flounder, it may not be able to avoid a dividend cut. A dividend cut, suspension or elimination would hurt the desired expected returns of their investors.
One CEO Sheds Light on the Positives of Smaller Payout Ratios
Craig Bolanos, CEO of Wealth Management Group in Inverness, Illinois, told USNews, that a lower payout ratio can be good because investors receive income and the company still can reinvest cash to grow the business. The cash cushion left with the company can allow room for pay “attractive dividend increases” in the future, Bolanos added.
Best Buy Offers a High Dividend Yield and a Strong Payout Ratio
Best Buy Inc. (NYSE:BBY), a retailer that sells consumer electronics, appliances and other goods, pays an annual dividend of $2.20 per share to offer a current dividend yield of 2.70%. Best Buy’s latest dividend pay date of April 9, 2020, triggered its quarterly dividend. According to MarketBeat, Best Buy has been able to grow its dividend for the past eight consecutive years and has averaged an annual increase of 17.39%. Based on its trailing-12-months of earnings, the company is estimated to have a 36.24% dividend payout ratio.
“A reasonable payout ratio range is around 40 percent, which is realistic when searching for dividends that are sustainable with good growth prospects,” Bolanos said.
Home Depot Hangs on to its High Dividend Yield
Home Depot (NYSE:HD) has a marginally lower dividend yield than Best Buy, yet it offers a larger annual dividend. The home improvement retailer pays a dividend of $6.00 per share and offers a current dividend yield of 2.52%. Home Depot began paying dividends in 1987 and its next dividend date is June 18, 2020.
Even though Home Depot has a bit of a higher payout ratio, it is still in the safe zone with a 58.54% ratio. Home Depot’s dividends have matured over the last seven consecutive years and continue to increase by an average of 19.01% each year. This quarterly dividend-paying stock boosted its payout to $0.14 on Feb. 25, 2020.
Home Depot is Well Above Dividend, According to one Investment Officer
In an interview on CNBC’s Trading Nation, Nancy Tengler, chief investment officer at Laffer Tengler Investments, said she prefers Home Depot to Lowes, partly because of healthy cash. Home Depot also is “best in class,” has the best locations, top management team and a track record of boosting its dividend about 20% each of the past five years, Tengler added.
Target Sports a Tantalizing Dividend Track Record
Target (NYSE:TGT) has a relatively strong dividend yield of 2.2% and an annual dividend of $2.64 per share, with its next dividend payout on June 10, 2020. This company has hiked its dividend 52 consecutive years, with growth of its payout averaging 2.66% each year.
Target has a payout ratio of 41.31%, which is almost exactly the sweet spot Bolanos identified. According to MarketBeat, based on this year’s estimates, the company’s payout ratio will equal 52.69%. However, as projected by the same source, the company’s estimated payout ratio of 39.05% for 2021 would approach the sweet spot.
Walmart Weighs in at No. 4 on with its Dividend Yield
Walmart (NYSE:WMT) is a giant force to be reckoned with in the retail industry. The company pays an annual dividend of $2.16 per share and has a dividend yield of 1.72%. It began paying dividends in 1973 and its next dividend pay date is Sept. 8.
Much like Target, it has a strong dividend growth track record. It has raised its dividends for each of the past 46 years. Walmart has increased its dividend an average of 1.92% each year and has a healthy payout ratio of 43.81%.
Dividend Aristocrat Walmart is One of Four Retail Stocks Offering Solid Dividend Yields
According to The Motley Fool, Walmart is one of the biggest revenue generators in the world. It ended fiscal 2020 with $523.96 billion in revenue.
The article noted the company’s payout ratio leaves plenty of room for future dividend growth. Along with its payout ratio, the company began a $20 billion share repurchase program in 2017, which has helped boost its cash return, and still has $5.7 billion worth of shares eligible for repurchase starting Jan. 31.
COVID-19 Has Not Stopped Four Retail Stocks Offering Solid Dividend Yields
Though COVID-19 has hit every industry with heavy force, the four companies above are all mature and have enough liquidity to allow them to weather the ongoing crisis. They have strong dividend yield percentages and payout ratios that are solid.
Each of the above companies has a solid to superb dividend growth record and has had a dividend increase recently. Their payout ratios show that they are not spending all their company earnings in dividends, leaving a portion of the earnings to pursue revenue growth.
These four retail stocks offering solid dividend yields may be good picks for investors who are patient and willing to accept less potential share price growth in exchange for receiving consistent income.
Emily Mirabelli is an editorial staffer with Eagle Financial Publications and a writer for www.dividendinvestor.com.