Don’t you love to buy stuff on sales. So many clothing dividend stock retailers mark there clothing prices way up. Then, they get to mark them down and say, look at our awesome sale. They rotate what goes on sale, but some stuff is way overpriced and some is a really good deal. Can you spot the great deals? Or did you just pay too much for that pair of shoes. We will be talking about this clothing retailer with a monster high dividend yield. Or, if you want, you can read about how They took my Shares, but I am the Winner.
Kohl’s (KSS) took a monster drop. It fell from $51.88 to 42.01 the following day. That is a 19% drop. It is on sale now or does it belong in the clearance rack?
First, Some Background
Kohl’s (KSS) is a department store in the United States. They sell clothing such as shirts, jeans, and pants. They also sell some additional items such as toys, appliances, beauty, and other accessories. In 49 states with more than 1,100 stores. They have $19 billion a year in sales. They are headquartered in Menomonee Falls, Wisconsin and they were founded in 1962.
Our Favorite Part, The Dividend
When the stock was priced at $41.36 at our buy price, we will start with a nice 4.8% dividend yield. If we would have bought it 1 day earlier, our dividend yield would have only been 3.9%. What difference a day can make?
In March 2011, Kohl’s (KSS) starting paying its current dividend streak. They have 5 years of yearly increasing dividends and not missing a payment. Not a Dividend Aristocrat, but you have to start somewhere. They have been raising their dividend payment at the end of Februaries. Therefore, we are expecting an increasing in our dividend payment pretty soon. We are guessing a small increase, but an increase nonetheless.
What about the Value
Buying a good dividend yielder means nothing if they have a bad value. The last thing we want is a dividend cut right after we buy the stock. They have a PE of 12.5, which is not too high for us. Their dividend payment to earnings is about 60%, which doesn’t leave to much room to go up. However, their dividend payment to cash flow is less than 20%. With cash flow, we see the dividend as safe and with room to grow. Mmmmm, Dividends. It also looks like their long-term debt has gone down from $4.6 to $4.5 Billion over the past 4 quarters. While that is not a lot of debt being decreased, it is better than their debt increasing. And we like seeing the debt being decreased.
What about the fall?
But, if the stock fell so much, something must be wrong. Well, it did not fall because everything is rosy. They reduce their earnings forecast from $2.92 – $2.97 from $3.12 – $3.32 per share. November and December sales were down 2.7%. There is a lot of weakness in general in clothing retailers. However, they are making a lot of cash and they have time to figure everything out. We do not expect the share price to go up a bunch, but we do foresee an increasing dividend payments.
When investing, it is nice if you actually use the companies that you invest in. If you can see their product is becoming better, worse, or staying the same, you can get real life experience in how well they are doing. I happen to shop at Kohl’s (KSS), which helps me to have a personnel opinion of their stores. I find their products to be a good value. There clothes seem to hold up well and not wear out too fast. Compared to shopping at some stores, like at a mall, their prices are not high usually. So we view shopping at Kohl’s (KSS) for clothes is a good value for us.
What I bought
On 1/6/17, we bought 100 shares for $4,135.50 including those snazzy dressed commissions. This will add $200 per year in dividends.
In addition, we sold 1 call, April 2017 at $40 strike price, which is a little in the money. We took in $419.95 in cash. This reduced our cost from $41.36 to $37.16 and increased our dividend yield from 4.8% to 5.4%. This is the second option contract I have done with my passive income dividend stocks. We see 3 possible outcomes from selling this call.
- 1: The stock goes up in price and we get called away. If this happens, we will make $284.45 in less than 3 month. Making a 7.7% profit in 3 month is not bad.
- 2: The stock goes down a little. Then the call options expire worthless and we get to keep the shares and keep the money from selling the call.
- 3: The stock falls in price. The call expires worthless, and it reduces the amount of the paper loss by $419.95. So, it offers a little bit of protection down to $37.16.
Do you think Kohl’s (KSS) with its monster dividend is a nice addition to our passive dividend income? Feel free to share your thoughts in the comment section.
Disclosure: KSS – We own shares and sold a call options