Time to Check Out KSS Stock
For people that thought the retail industry was over, Kohl’s Corporation (NYSE:KSS) just delivered a blunt reality check.
On February 27, Kohl’s board of directors declared a quarterly cash dividend of $0.67 per share. This represented a 9.84% increase from the company’s previous payment of $0.61 per share. The new dividend will be paid on April 3, 2019 to shareholders of record as of March 20. (Source: “Cash Dividends & Stock Splits,” Kohl’s Corporation, last accessed March 8, 2019.)
Now, you might be wondering what’s so special about this dividend increase announcement. At the end of the day, many companies choose to review their dividend policies around this time of year.
Well, the answer lies in the size of the increase.
You see, Kohl’s Corporation opened its first department store back in 1962, meaning the company has been around for over five decades.
What usually happens with decades-old companies is that as their business becomes established, the growth rates in their business—and dividends—tend to slow down.
Even some of the most popular companies exhibit this pattern. For instance, the latest dividend announcement from Walmart Inc (NYSE:WMT) was a measly 1.96% increase. (Source: “Dividend History,” Walmart Inc, last accessed March 8, 2019.)
Another example is Target Corporation (NYSE:TGT), which is a department store retailer just like Kohl’s Corporation. Target has an excellent track record of paying increasing dividends to shareholders as the company has raised its payout for 47 consecutive years. However, its latest dividend hike was just 3.28%. (Source: “dividend & stock split history,” Target Corporation, last accessed March 8, 2019.)
Mind you, I’m not saying that these two companies are not good. In fact, I consider WMT and TGT solid dividend stocks. But the fact that Kohl’s Corporation can deliver a much bigger dividend hike than these two solid companies makes it stand out.
And if you take into account the headwinds facing the retail industry, Kohl’s dividend announcement looks even more impressive.
Of course, for a company’s dividend policy to be sustainable, it has to make enough profits to cover the payout. Can Kohl’s retail business support its rising dividend payments?
Based on the latest financial results, the answer is yes.
Kohl’s Corporation: Offering Safe and Increasing Dividends
In Kohl’s fiscal year 2018, which ended February 2, 2019, the company generated an adjusted net income of $927.0 million, or earnings of $5.60 per share. Since Kohl’s declared and paid total dividends of $2.44 per share during the fiscal year, it had a payout ratio of 43.6%, leaving a considerable margin of safety. (Source: “Kohl’s Corporation Reports Financial Results,” Kohl’s Corporation, March 5, 2019.)
And despite the threat from the booming e-commerce industry, Kohl’s business is growing. The latest earnings report showed that the company’s annual comparable sales edged up 1.7%. Moreover, Kohl’s adjusted earnings of $5.60 per share in 2018 represented a 34% increase year-over-year.
For those wondering how the company is doing when many retailers are announcing massive closures, note that in 2018, Kohl’s opened one new store and relocated two stores.
For 2019, the company plans to close four underperforming stores in April, but will open four new stores later in the year. (Source: Ibid.)
Bottom Line on Kohl’s Corporation
Trading at $68.97 apiece at the time of writing, KSS stock offers a generous annual yield of 3.9%.
Since the company declared its first dividend of $0.25 per share back 2011, it has raised the payout every single year, by a total of 168%.
Given Kohl’s Corporation’s solid business and conservative payout ratio, management should have no problem keeping that track record alive. So for dividend investors of KSS stock, the best could be yet to come.