The Top 3 Black Friday Stocks to Splurge On

The entire retail space has been up in arms over the last few weeks.
Many of the retailers have noted that demand for their products is down and traffic is declining. It’s not as bad as 2008 or 2009, but the majority of retailers aren’t expecting a huge change in demand over the next couple months.
Just look at how some of the major retailers are performing of late.
Best Buy (NYSE: BBY) shares are down 12% over the last month; GameStop (NYSE: GME) is down 16% over the same period; J.C. Penney (NYSE: JCP) is off 22%; Nordstrom (NYSE: JWN) is down 18%; and Macy’s (NYSE: M) is the biggest loser, with shares down 23%.
Owning any of these companies appears to be tough proposition right now.
The pain could continue into the holiday season – including on Black Friday – as Amazon.com (NASDAQ: AMZN) is eating more of retailers’ proverbial lunches.
But there are bright spots in the industry. The key is that investors should stick with the top retailers this Black Friday – those that have distinct advantages over peers and other retailers. Part of that includes owning retailers paying dividends.
Granted, the dividends on the three stocks below don’t look like much, but the companies have a history of consistently rewarding shareholders.
Here are the top three Black Friday stocks to add to your shopping list:

TJX Companies (NYSE: TJX)

TJX Companies, the owner of T.J. Maxx and Marshalls, has been dragged down with the rest of the retail industry. Shares are off 6% over the last 30 days, but its off-price retailing model is outperforming its department retail peers.
Same-store sales were up 5% in the third quarter. Driving this trend was an increase in traffic, which comes at a time when other retailers are seeing customer traffic fall.
TJX can perform nicely in any economic environment with the off-price model and has advantages over peers with inventory turnover, thanks to its last-minute inventory purchasing model.
TJX is trading at 18 times next year’s earnings estimates and offers a 1.2% dividend yield. It’s upped its dividend for 18 straight years. Its dividend is only a 25% payout of earnings and the company has one of the best returns on invested capital in the business, coming in at over 35%.

Costco (NASDAQ: COST)

Costco has been one of the bright spots for investors, with its stock up 5% over the last month. It’s also paying a 1% dividend yield and has upped its dividend for 11 consecutive years.
Costco is the leader in the warehouse club retail business. One of its big advantages is its vast membership network. Three-quarters of its cash flow is from membership fees, which gives investors a steady cash flow.
Then there’s its bargaining power on the inventory purchasing side, which helps keep costs low for customers. That creates an economic moat of sorts for the company. Low prices will be something that shoppers are looking for this holiday season.

Home Depot (NYSE: HD)

Home Depot is another retailer that’s held up well. It’s paying out a healthy 1.9% dividend yield and also boasts a solid 25% return on invested capital. During the third quarter, same-store sales were up 5.1% and earnings were up 12% year-over-year.
Home Depot has returned over 20% of its market cap to shareholders over the last five years via buybacks and dividends.
In terms of home improvement retailers, Home Depot and Lowe’s (NYSE: LOW) really own the market. But Home Depot’s dividend is more than 25% higher than Lowe’s and its return on invested capital is over 66% higher.
The other beauty of Home Depot is that professional homebuilders also shop there. It’s a market that Home Depot has catering to of late, in part because these customers spend more per visit.
Home Depot is the best player in the still growing homebuilding and home improvement market. Americans are still spending on home improvement and will continue to do so this Black Friday. Amazon can’t really compete in this area.
With Black Friday just around the corner, bottom fishing is tough to justify as we enter an uncertain holiday shopping season. Stick to companies that have competitive advantages, strong cash flows and the ability to grow their dividends over the long term.