5 Turnaround Stocks: Strong Dividends with Downside Protection

Investing in turnaround stocks is never a sure thing.
It can be a rocky ride for investors, with lots of ups and downs. However, it’s a little easier when investing in deep value opportunities if you also have a strong dividend that offers downside protection.
The 5 turnaround stocks below are made even more intriguing by their strong dividend yields. Each offers a yield that’s more than you’ll get with the S&P 500, where the average S&P 500 dividend yield is under 2%.

Here are the top 5 dividends in turnaround retail.

No. 1 Dividend In Turnaround Retail: Staples (NASDAQ:SPLS)

Staples offers a 4.3% dividend yield. It also only trades at a P/E ratio of 11.5. That puts it as one of the cheapest stocks in the specialty retail industry. The retailer of office products should be a big benefactor of the rebounding economy, which should drive more sales of higher ticket office furniture and products.
As part of its turnaround efforts, Staples is closing underperforming stores. It plans to close some 225 stores across North America by 2015. The retailer is also looking to reduce its store size in an effort to make its stores more convenient to shoppers — this includes shifting to a 12,000 square foot model, versus its larger formatted 18,000 to 24,000 square feet.
The other key opportunity is that Staples could still buy Office Depot in an effort to compete better with the likes of Amazon. Given that Staples has a strong presence in the online marketplace, and the majority of its stores are in the Northeast, the merged company could appease the FTC by closing a large part of its stores and just using the Office Depot retail stores as its brick-and-mortar presence.

No. 2 Dividend In Turnaround Retail: Best Buy (NYSE: BBY)

Best Buy offers a 2.6% dividend yield and its P/E ratio of below 10 makes it a deep value play. Coupled with Wall Street’s expected earnings estimates, its P/E ratio to growth rate (PEG) ratio is 0.7.
Best Buy has had a rocky couple of years, which comes after the company looked to be gaining traction with its turnaround initiatives, but stumbled after disappointing investors with a less than enthusiastic push toward ecommerce.
But it could be gaining traction in this area. During fiscal 1Q 2015, comparable online sales were up 29%, driven by the fact that it’s now shipping from stores and is building up online distribution system. Part of its plan to become a larger player in the ecommerce market is to continue building out its online fulfillment centers.
In the meantime, it plans to use store-in-a-store concepts to keep customers coming into its brick and mortar stores. As part of this, it’ll be opening 1,400 “Samsung Experience Shops” in its stores over the near-term. It also has partnerships with Sony and Microsoft, which will include the roll out of Windows Store in various locations.

No. 3 Dividend In Turnaround Retail: Coach (NYSE: COH)

Coach’s 4% dividend yield is the highest it’s been in half a decade. Its recent selloff has put the stock trading at a P/E ratio of 10. What’s more is that it has no debt and its return on investment is a very impressive 42% (over the trailing twelve months).
This maker and seller of accessories has been beaten down on a number of occasions this year, namely after earnings reports that revealed it continues to lose market share to the likes of Michael Kors in North America.
Its big turnaround plan includes further penetrating international markets. It plans to add some 30 new dual-gender outlets in China this year, and 5 to 10 stores in Japan. Thanks to Asia’s growing middle class, the country marks a key opportunity for high-end accessory companies.

No. 4 Dividend In Turnaround Retail: GameStop (NYSE: GME)

This retailer of video games and consoles pays a 3.2% dividend yield. Its P/E ratio based on next year’s earnings estimates is just under 10, and its PEG ratio is a low 0.85. Another reason to love GameStop is its debt-free balance sheet.
It’s also a share buying back machine. During 1Q 2014, it bought back $52 million worth of shares, leaving $400 million under its current authorization — good enough to reduce its shares outstanding by 8.5%. Over the last five years, it’s reduced its shares outstanding by 30%.
In an effort to hedge any decline from video game sales due to digital downloads, GameStop is looking to break into the mobile market, namely with its Spring Mobile purchase, which is the retailer of AT&T phones. It’s also planning on doubling the size of its Simply Mac retail stores, which sells Apple products.

No. 5 Dividend In Turnaround Retail: American Eagle Outfitters (NYSE: AEO)

This apparel retailer offers the highest dividend yield of the five, coming in at 4.8%. American Eagle has no debt, but shares are down 45% from their 52-week high. This comes as the teen apparel industry has been one of the toughest industries to invest in, thanks to record high levels of teen unemployment and the rise of fast-fashion retailers (such as H&M and Forever 21).
As part of its turnaround plan, American Eagle is shutting down stores and turning to ecommerce. This year it plans on closing a total of 70 stores, and will close upwards of 150 over the next three years. It is launching a new website and mobile app to drive ecommerce sales. As well, it’s opening a new fulfillment center this month for improving product availability and delivery times of online orders.
The five dividend paying turnaround stocks above appear to be value and income stories. While turnarounds take time, these stocks will pay you to wait. Ultimately offering the double whammy of investments, income and stock appreciation.

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