Kohl’s Corp: Why KSS Stock is a Good Income Opportunity
Kohl’s Stock Pays a Very Nice Dividend
Kohl’s Corporation (NYSE:KSS) stock presents income investors with some really interesting opportunities because of its high dividend yield and ability to make money in the department store business.
Kohl’s stock reported a dividend yield of 4.49% on October 4, 2016. KSS stock’s yield has increased dramatically over the past two years; it was 2.5% in October 2014 and 3.81% in October 2015.
To add icing to the cake, KSS stock’s dividend yield has been much higher in the recent past. It shot up to 5.16% on June 14, 2016. (Source: “Kohl’s Dividend Yield (TTM),” YCharts, last accessed October 5, 2016.)
KSS stock’s yield is certainly paying off for Kohl’s shareholders; they received a dividend payment of $0.50 on September 21, 2016. That was a $0.05 increase over September 2015, when KSS stock paid a $0.45 dividend.
Owners of Kohl’s stock saw an even bigger increase between 2014 and 2015. The KSS dividend was $0.39 in 2014, but went up to $0.45 in 2015, marking an increase of $0.06 in just one year.
This dividend growth is a long-term trend at Kohl’s: the dividend was $0.35 in 2013, $0.32 in 2012, and $0.25 in 2011. The amount of Kohl’s stock dividend has doubled in a five-year period. (Source: “Kohl’s Dividend,” YCharts, last accessed October 5, 2016.)
KSS Stock: High Dividend Yield In Spite of Declining Revenue
Kohl’s dividend yield increased significantly, despite a drop in revenues during the first half of 2016. Kohl’s reported revenues of $19.3 billion on January 2016; that fell to $18.97 billion in July. Over the past year, Kohl’s dividend increased by $0.05, even though its revenue fell by $230.0 million. (Source: “Kohl’s Revenue (TTM),” YCharts, last accessed October 5, 2016.)
Kohl’s is able to keep paying that dividend because it is still making money off its operations, unlike some of its competitors. For the second quarter, Kohl’s reported a net income of $573.0 million.
Kohl’s also managed to generate quite a bit of cash in the form of $543.0 million in free cash flow and $1.967 billion in cash from operations during the second quarter of 2016. That gives Kohl’s the resources to keep paying those dividends in a declining department store sector.
More importantly, Kohl’s is able to keep quite a bit of that money in the form of $700.0 million in cash and short-term investments. That gives some of what Warren Buffett calls “float,” which is extra income that can be used to cover expenses or to pay for expansion. (Source: “Kohl’s Key Stats,” YCharts, last accessed October 5, 2016.)
Kohl’s Stock Presents Value
There’s quite a bit of value at Kohl’s in the form of $13.36 billion in assets, reported on July 31, 2016. Those assets included around 1,200 in 49 states (Source: “FAQs,” Kohl’s Corporation, last accessed October 5, 2016.)
Unlike some of its competitors, Kohl’s is still making money from those stores. Kohl’s is planning to close just 18 stores in 2016, even though more than 700 U.S. department stores have closed since 2013. (Source: “More Than 700 Department Stores Have Closed Since 2013,” Fortune, September 28, 2016.)
That creates more potential business for Kohl’s because it has less competition. In some cases, it might be the only department store left in town, which means its only real competitors will be online retailers and discount stores.
Kohl’s is also in the midst of a modest expansion. The company plans to open two Off Aisle discount stores and 12 Fila Outlet locations in 2016 to make up for losses in the department store business. (Source: “Store closings signal big change at Kohl’s,” CNBC, February 26, 2016.)
This positions Kohl’s to take advantage of the discount segment, which is attracting many high-income shoppers. NPD Checkout Tracking calculated that 25% of dollar stores’ business comes from Millennials, persons under 35 that earn more than $100,000 a year. (Source: “Dollar stores are changing the way they do business, thanks to rich millennials,” New York Daily News, June 21, 2016.)
The Bottom Line on KSS Stock
Kohl’s is a good stock for income investors because of its high dividend yield. It is a money-making company that is well positioned for survival in a highly competitive department store sector.