Investing in dividend stocks is becoming harder for me, especially compared to January and February. As the stock market keeps going up, it is becoming harder to find inventory on sale. The cheaper I can buy dividend stocks, the better the dividend yield. So the is the question being how to find a good dividend stock. So I decided to play around with a stock screener. Eventually, I decided to look at the stocks within 10% of their 52-week low. There were a few stocks on the list. I sorted by dividend yield and started researching the different companies on the list. Then I stumped upon my next find. Time to dress for success with dividend stocks.
I stumbled upon Kohl’s (KSS). They have over 1,100 department stores. A few years ago, in 1962, they were founded and they are currently headquarters in Menomonee Falls, Wisconsin. Their main product is clothing for men, women, and children.
Currently, their stock is facing some weakness. Currently, they are down by over 40%. We believe the weakness comes from the recent warm winter. Because winter was warm, it makes it harder to sell new winter coats. The temperature of winter is hard to predict in advance. When is the last time you agreed with the 3-month winter weather forecast? So we are going with that this was part of the luck of the drawl and effected several clothing stores.
Dress for Success with Dividend
In 2011, Kohl’s (KSS) started to pay a dividend of $1.00 per year dividend. 5 years later, they are now paying $2.00 a year dividend. In only 5 years, they doubled their dividend. With their earnings of $3.45 per share per year, they have plenty of earnings to pay and grow their dividend. If they keep growing, maybe the next double will happen in 7 years, assuming a slower rate of growth. $4 a share dividend at the current price would be awesome.
How about valuation? Currently, they are trading for a PE of 12.5. That is cheap. It’s P/S ratio is only 0.42. This is also very cheap. There revenue is over twice the value of the company. If you look at a 10-year chart above, the stock is basically flat with the orange line at $51.79. We are ok with that, considering we are investing for the growing dividend. Buying it at $42.68 looks good at a 17% discount. They have only been paying a dividend since 2011, as shown in the green line. In 2016, the dividend went from 2.5% to 4.7%, which is a much better dividend income for us.
There are several advantages that Kohl’s (KSS) has in the clothes business. Our thesis involves them not being in malls. Malls are expensive and many people are not shopping at malls anymore. They also sell a good value product. You can get cheaper or better quality clothes elsewhere, but they provide a good value. Another advantage they have is that is where I shop. When I go clothes shopping twice a year, this is where I go. Being that I actually shop at the stores, I get firsthand knowledge of what is going on in a couple of stores. Owning shares in companies you already use is one good source of information.
The biggest risk I see is the internet. Kohl’s (KSS) is investing in their website for sales. While I do buy a bunch of stuff on the internet, I like buying clothes in person. I can look, touch, try on, and then buy. There is no returning clothes on the internet. I want to buy once and then be done with the transaction. I believe I am not the only one. However, with them growing their website, this will allow them to compete for years to come.
What we Bought
We bought 6 shares of Kohl’s (KSS) for $263.07, including the commissions to pay for those fancy clothes. Are you dressing for success with your dividend stocks?
Do you dress for success with dividend stocks? Please let us know what you think of Kohl’s (KSS) in the comment section below.
Disclosure: KSS – We own shares.