Kohl’s Corporation Offers Seven Years of Rising Dividends, Share Price Reaches New All-Time High (KSS)
By: Ned Piplovic,
While the retail sector has generally struggled against the onslaught of e-commerce expansion, the Kohl’s Corporation (NYSE:KSS) managed to offer relatively positive results over the past few years. Despite experiencing a significant share price decline in 2015, the company continued to pay rising dividends and the share price recovered fully to reach its new all-time high at the end of August 2018.
The online retail sector continues to expand and take market share from traditional brick-and-mortar retail outlets. However, some traditional retailers are expanding their own online presences and integrating their e-commerce operations into their overall retail operations to offer advantages like in-store pick up and returns of items ordered online. These benefits could mitigate some of the advantages of pure online retailers.
Many traditional retailers will not be able to survive the competition from online retailers and will go the way of Circuit City, Borders, Sports Authority, Toys R Us and Caldor. However, Kohl’s — which incidentally took over a number of Caldor locations after their liquidation — might have figured out a business model that could compete with the expansion of online retail.
Therefore, investors who agree that Kohl’s has a viable business model should consider a long position. Additionally, it would be especially beneficial for interested investors to act before the next ex-dividend date on September 11, 2018, and make sure to be eligible for the next round of dividend distributions on the September 26, 2018, pay date.
Kohl’s Corporation (NYSE:KSS)
Headquartered in Menomonee Falls, Wisconsin, and founded in 1962, the Kohl’s Corporation operates as an omni-channel retailer in the United States. The company’s stores and website offer apparel, footwear, accessories, beauty and home products. As of June 2018, the company operated 1,156 department stores in 49 states, the website Kohls.com, 12 FILA outlets and 4 Off-Aisle clearance centers. As of the end of 2017, most of the company’s stores (93%) were either free-standing or located within strip centers, with only a small share of the stores (7%) located inside malls. Large stores larger than 70,000 square feet that the company calls “Prototype stores” also dominate the company store mix with 84% share, and small stores of 30,000 to 70,000 square feet make up the remaining 16%. Furthermore, the company leases 65% of its current locations and owns the buildings for the remaining 35% of its stores. In addition to nationwide brands, Kohl’s also offers a number of proprietary apparel and bedding brands, including Croft & Barrow, Sonoma, Apt. 9, Tek Gear, Mudd and Jumping Beans, as well as exclusive celebrity lines, such as Simply Vera Vera Wang and LC Lauren Conrad. To support its sales, the company also operates 14 distribution centers.
The company’s recent streak of rising dividends culminated in the current quarterly dividend amount of $0.61 per share. This new quarterly amount is almost 11% higher than the $0.55 payout from the same period last year. Additionally, the current quarterly payout is equivalent to a $2.44 annualized distribution and a 2.9% forward dividend yield. The company grew its total annual dividend payout at an average growth rate of 13.6% per year and advanced the annual payout amount nearly 150% over the past seven years.
While the Kohl’s Corporation has managed to pay rising dividends every year since initiating dividend distributions in 2011, the rapid share price growth outpaced the growth rate of the rising dividends and suppressed the current yield more than 16% from the 3.4% five-year average yield to the current 2.9% level.
However, while trailing the company’s own five-year average, KSS’ current yield outperforms the 1.94% average yield of the overall Services sector by nearly 60% and the 1.14% average yield of the Department Stores industry segment by more than 170%. Even compared to the 2.29% average yield of only dividend-paying companies in the Department Stores segment, Kohl’s current yield is still 35% higher.
The share price rose with minimal fluctuations and doubled from its 52-week low of $40.39 on September 5, 2017, to its new all-time high of $80.86 on August 24, 2018. After its new all-time peak, the share price pulled back 2% and closed on August 31, 2018, at $79.11. While only 54% higher than it was five years ago, this closing price was 95% above its 52-week low from just 12 months earlier. While the total returns were only 68% and 73% over the past three and five years, respectively, the shareholders enjoyed a total return of 105% over the past 12 months.
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