Retail Stocks Aren’t Dead: These 3 Dividend Increases Prove It

Retail stocks are universally hated right now. Analysts are extremely bearish on physical retailers, and the market has effectively thrown in the towel when it comes to brick-and-mortar retailers. The big fear is that Internet retail, led by Amazon.com (NASDAQ: AMZN), will be the death knell for retail.
But investors should see things differently. Many retailers remain solidly profitable, and some are seeing excellent growth. In fact, three major retailers recently passed along double-digit dividend increases to shareholders.
Here are three retail stocks rewarding investors with strong dividend increases, and why each makes a case as a dividend stock worth owning right now.

Retail Stocks That Deliver Dividends

Home Depot (NYSE: HD) is benefiting from the recovery in the labor and housing markets in the United States in the aftermath of the Great Recession. Consumers are feeling more secure in their jobs and the value of their homes, and Home Depot is racking up massive growth from consumers’ willingness to spend more money on home improvements.
Home Depot recently reported very strong results for the 2015 fiscal year. Comparable-store sales, a key metric for retailers that analyzes performance at stores open at least one year, rose 5% company-wide. The United States was a source of strength for the company. Domestic comparable sales were up 7% for the year. Earnings per diluted share in fiscal 2015 grew 15% year-over-year.
Home Depot’s success last year allowed it to increase its dividend by 17%. This is the seventh consecutive year of a dividend increase for the company.
Home Depot expects to have another good year in fiscal 2016. Management’s guidance calls for 5% to 6% sales growth, 3.7% to 4.5% growth in comparable sales, and at least 12% earnings growth. This retail stock should provide plenty of growth to continue increasing its dividend at a high rate going forward.
Kohl’s (NYSE: KSS) is a retail stock falling on hard times, as its stock price has lost one-third of its value over the past year. This has come amid escalating fears that the surprisingly warm winter compelled consumers to forego purchases of winter-related apparel.
Reflecting its challenges, Kohl’s announced it would close 18 stores, the first time it will undergo multiple closures in its 52-year history. But the company also announced a $600 million share repurchase along with its quarterly earnings. And, Kohl’s recently increased its dividend 11%, to $2 per share annualized.
Kohl’s is experiencing slowing growth. Total sales have been stuck at $19 billion for four years. But it is still highly profitable. The company is still on track to earn $4 per share this year, which is more than enough to cover its new $2 per share dividend. The stock yields 4.3%, which is more than double the yield of the S&P 500 Index.
TJX Companies (NYSE: TJX) recently raised its quarterly dividend by 24%. Its new dividend rate of $1.04 per share yields 1.4% right now. That’s a below-average yield, but over time, the stock can make up for this with strong dividend growth.
TJX, parent company of the T.J. Maxx, Marshall’s, and Home Goods stores, has been an excellent dividend grower for many years. In fact, this raise represents 20 years in a row of consecutive dividend growth for the company. In that time, it has increased its dividend by 23% compounded annually.
Not only did TJX raise its dividend, it also announced a new $1.5 billion-$2 billion stock buyback authorization.
TJX’s success is due to strong growth across its brands. In 2015, the company grew total sales by 6% and comparable sales by 5%. It performed even better last year than it did the previous year, in which it grew comparable sales by 2%. Earnings per share jumped 5% for the year.

The Bottom Line for Retail Stocks

The conventional wisdom in the stock market right now is that retail is dead. However, judging by the financial performances of Home Depot, Kohl’s, and TJX, that does not appear to be true. Each of these retail stocks pays a dividend, and all three of them increased their dividends in recent weeks.
While the Internet retail business is indeed having a devastating effect on certain retailers, it’s not all bad. Some companies can still succeed in the brick-and-mortar game. For income investors on the hunt for solid dividends, these are retail stocks worth considering.
DISCLOSURE: Bob Ciura personally owns shares of Kohl’s (NYSE: KSS).