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4 Dividend-Paying Retail Stocks to Shield From Market Volatility
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Investors seem to be nervous and are treading Wall Street with utmost caution as worries about a global slowdown and a possible recession loom large over the stock market. Market pundits fear that the Federal Reserve’s hawkish stance to tame inflation might push the economy into a recession.
A higher interest rate environment may hit consumer spending activity and this may not be good news for companies in the retail sector. Players in the industry may have to walk a tightrope to woo budget-conscious shoppers. Rising prices of groceries and other essentials are compelling consumers to hold back on discretionary spending and industry participants might turn to promotions and discounts to attract shoppers.
Retailers are keeping their fingers crossed and pinning hopes on stimulus savings from last year, steady wage gains and a lower unemployment rate that should help keep demand alive. Markedly, the U.S. unemployment rate dropped to 3.5% in September from 3.7% a month earlier, while nonfarm payrolls climbed 263,000 for the month. We also note that average hourly wages rose 5% from a year ago and 0.3% on a month-on-month basis.
The aforementioned factors do make us optimistic but one should be mindful that the sector is not fully immune to the headwinds that have gripped the stock market lately. On that note, investing in high-quality dividend stocks such as The Kroger Co. (KR - Free Report) , The Home Depot, Inc. (HD - Free Report) , Target Corporation (TGT - Free Report) and Big Lots, Inc. (BIG - Free Report) might fetch you promising returns. These stocks have a dividend yield of greater than 2% and a payout ratio of less than 60, reflecting enough room for future dividend increases.
Investors prefer to bet bucks on the safer counters to shield themselves from the upheavals that the financial world is susceptible to. They prefer an income-generating stock and a dividend-paying stock is always a better choice.
Past Year Price Performance
Image Source: Zacks Investment Research
Our Choices
Kroger: The company, which operates in the thin-margin grocery industry, has been undergoing a complete makeover not only with respect to products but also in terms of the way consumers prefer shopping grocery. The company has been adding new products as well as eyeing technological expansion to enhance its omnichannel reach. Kroger has been making significant investments to enhance product freshness and quality and expand digital capabilities. This Zacks Rank #2 (Buy) company has been introducing items under its “Our Brands” portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Kroger has an estimated long-term earnings growth rate of 11.7%. The company pays out a quarterly dividend of 26 cents ($1.04 annualized) per share, giving a 2.3% yield at the current stock price. KR’s payout ratio is 21, with a five-year dividend growth rate of 13.2%. (Check KR’s dividend history here).
Home Depot: The world’s largest home improvement specialty retailer has been witnessing continued demand for its products and assortments, despite broad-based inflation. The company is also benefiting from continued strength in both the Pro and DIY categories as well as digital prowess. Higher remodeling home activity amid rising new home prices should benefit Home Depot.
Home Depot has an estimated long-term earnings growth expectation of 11.2%. This Zacks Rank #3 (Hold) company pays out a quarterly dividend of $1.90 ($7.60 annualized) per share, giving a 2.7% yield at the current stock price. HD’s payout ratio is 47, with a five-year dividend growth rate of 16.8%.
Target: This general merchandise retailer has been making investments to enhance omnichannel capabilities, develop new brands, refurbish stores and expand same-day delivery options to provide a seamless shopping experience to customers. Target has been making multiple changes to its business model to adapt and stay relevant in the ever-evolving retail landscape. The company is always striving to build on its partnerships, especially with popular and high-profile brands.
Target has an estimated long-term earnings growth rate of 9.9%. This Zacks Rank #3 company pays out a quarterly dividend of $1.08 ($4.32 annualized) per share, giving a 2.8% yield at the current stock price. TGT’s payout ratio is 41, with a five-year dividend growth rate of 8.1%.
Big Lots: The company has been gaining from its transformation initiative, referred to as Operation North Star, which encompasses driving top-line growth, cost containment, and enhancement of systems and infrastructure. With regard to its brands, Broyhill and Real Living have been performing well. Additionally, Big Lots intends to strengthen its balance sheet through asset monetization.
Big Lots has an estimated long-term earnings growth rate of 12%. This Zacks Rank #3 company pays out a quarterly dividend of 30 cents ($1.20 annualized) per share, giving a 6.8% yield at the current stock price. BIG’s payout ratio is 52, with a five-year dividend growth rate of 2%.
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4 Dividend-Paying Retail Stocks to Shield From Market Volatility
Investors seem to be nervous and are treading Wall Street with utmost caution as worries about a global slowdown and a possible recession loom large over the stock market. Market pundits fear that the Federal Reserve’s hawkish stance to tame inflation might push the economy into a recession.
A higher interest rate environment may hit consumer spending activity and this may not be good news for companies in the retail sector. Players in the industry may have to walk a tightrope to woo budget-conscious shoppers. Rising prices of groceries and other essentials are compelling consumers to hold back on discretionary spending and industry participants might turn to promotions and discounts to attract shoppers.
Retailers are keeping their fingers crossed and pinning hopes on stimulus savings from last year, steady wage gains and a lower unemployment rate that should help keep demand alive. Markedly, the U.S. unemployment rate dropped to 3.5% in September from 3.7% a month earlier, while nonfarm payrolls climbed 263,000 for the month. We also note that average hourly wages rose 5% from a year ago and 0.3% on a month-on-month basis.
The aforementioned factors do make us optimistic but one should be mindful that the sector is not fully immune to the headwinds that have gripped the stock market lately. On that note, investing in high-quality dividend stocks such as The Kroger Co. (KR - Free Report) , The Home Depot, Inc. (HD - Free Report) , Target Corporation (TGT - Free Report) and Big Lots, Inc. (BIG - Free Report) might fetch you promising returns. These stocks have a dividend yield of greater than 2% and a payout ratio of less than 60, reflecting enough room for future dividend increases.
Investors prefer to bet bucks on the safer counters to shield themselves from the upheavals that the financial world is susceptible to. They prefer an income-generating stock and a dividend-paying stock is always a better choice.
Past Year Price Performance
Image Source: Zacks Investment Research
Our Choices
Kroger: The company, which operates in the thin-margin grocery industry, has been undergoing a complete makeover not only with respect to products but also in terms of the way consumers prefer shopping grocery. The company has been adding new products as well as eyeing technological expansion to enhance its omnichannel reach. Kroger has been making significant investments to enhance product freshness and quality and expand digital capabilities. This Zacks Rank #2 (Buy) company has been introducing items under its “Our Brands” portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Kroger has an estimated long-term earnings growth rate of 11.7%. The company pays out a quarterly dividend of 26 cents ($1.04 annualized) per share, giving a 2.3% yield at the current stock price. KR’s payout ratio is 21, with a five-year dividend growth rate of 13.2%. (Check KR’s dividend history here).
Home Depot: The world’s largest home improvement specialty retailer has been witnessing continued demand for its products and assortments, despite broad-based inflation. The company is also benefiting from continued strength in both the Pro and DIY categories as well as digital prowess. Higher remodeling home activity amid rising new home prices should benefit Home Depot.
Home Depot has an estimated long-term earnings growth expectation of 11.2%. This Zacks Rank #3 (Hold) company pays out a quarterly dividend of $1.90 ($7.60 annualized) per share, giving a 2.7% yield at the current stock price. HD’s payout ratio is 47, with a five-year dividend growth rate of 16.8%.
Target: This general merchandise retailer has been making investments to enhance omnichannel capabilities, develop new brands, refurbish stores and expand same-day delivery options to provide a seamless shopping experience to customers. Target has been making multiple changes to its business model to adapt and stay relevant in the ever-evolving retail landscape. The company is always striving to build on its partnerships, especially with popular and high-profile brands.
Target has an estimated long-term earnings growth rate of 9.9%. This Zacks Rank #3 company pays out a quarterly dividend of $1.08 ($4.32 annualized) per share, giving a 2.8% yield at the current stock price. TGT’s payout ratio is 41, with a five-year dividend growth rate of 8.1%.
Big Lots: The company has been gaining from its transformation initiative, referred to as Operation North Star, which encompasses driving top-line growth, cost containment, and enhancement of systems and infrastructure. With regard to its brands, Broyhill and Real Living have been performing well. Additionally, Big Lots intends to strengthen its balance sheet through asset monetization.
Big Lots has an estimated long-term earnings growth rate of 12%. This Zacks Rank #3 company pays out a quarterly dividend of 30 cents ($1.20 annualized) per share, giving a 6.8% yield at the current stock price. BIG’s payout ratio is 52, with a five-year dividend growth rate of 2%.