3 Retailers For Dividend-Growth Investors In 2021

Tailwinds Will Drive Growth For Retail In 2021

Retail (NYSEARCA:XRT) has been one of the hottest and most unexpected trends of the pandemic. The shut-downs forced us to stay home, in response we spent our travel and leisure money on stay-at-home consumer goods, and there has been nothing but positive tailwinds since. The number one tailwind was economic stimulus but even that was only a boost to trends that were already in place. The trend I speak of is labor market improvement, a trend that has resumed in the wake of the summer’s economic reopening.

The American consumer was very healthy before the pandemic began because jobs were abundant and wages were rising. When the pandemic struck the American Consumer didn’t wither and die. While some were hurt badly by it many others adjusted to the new life kept on working and banked a lot of the stimulus. Or else used it to upgrade their lifestyles which ultimately means spending money and greasing the economic wheels.

Now, with unemployment down more than 50% from the summer peak and expected to shed another 3% to 4% over the next two quarters there are new tailwinds arising for both the consumer and the retail sector. These come in the form of renewed stimulus and a vaccine-supported reopening that will only spur retail spending to new heights.

Tractor Supply Company Is A Household Name

Tractor Supply Company (NASDAQ:TSCO) is not a small business but it is one that failed to garner much spotlight. Perhaps it’s the name, Tractor Supply Company because this company is closer to a high-tech general store than it is to a tractor dealership. That all changed when the pandemic struck. The company reported high-double-digit increases in revenue that were driven by both customer growth and ticket averages that are expected to remain sticky into the coming years. The growth will be supported by store expansion as well, expansion into underserved and more-rural areas where Target and Walmart have yet to venture.

In terms of dividend, Tractor Supply Company doesn’t deliver much in the way of yield, it’s a little less than 1.15% with shares at $143. That said, there is absolutely nothing not to like about the payment and the outlook for future distributions. The company is only paying about 24% of the consensus earnings and the balance sheet is a fortress. The company is carrying some debt but coverage is very high, leverage is running <1X FCF, and the $1.4 billion in operating cash flow is relatively unencumbered. Along with that is a positive outlook for distribution growth. Tractor Supply has been increasing for 10 years with a 17% CAGR.

BJ’s Wholesale Club Is A Deep Value Growth Story

BJ’s Wholesale Club (NYSE:BJ) doesn’t pay a dividend but that is the only bad thing I can say about the stock. The company operates a chain of wholesale membership clubs that, quite frankly, is trading at a ridiculously deep value. The stock is trading about 12X its this year’s earnings where the 2nd cheapest comparable stock, Walmart, is trading closer to 25X earnings. Pricesmart is trading closer to 33X and Costco 37X which all imply BJs deserves a higher multiple for its roughly 18% YTD growth.

Looking at the charts, this stock may be getting ready for a multiple expansion. Price action appears to be forming a bottom at a key support level near the $36 level. Resistance is at the short term EMA and represents a 15% discount to the current analyst’s consensus. A move in the price above the EMA would be a bullish movement.

Big Lots Is Still A Big Value

Big Lots (NYSE:BIG) is one of the most surprising deep-values on the market and more so because the value has persisted for so long. The company is riding not only a wave of pandemically inspired shopping but is also benefiting from an ongoing long-term turnaround plan. Called Operation Northstar, Big Lots has been making its stores more accessible and user-friendly while trimming costs and focusing on eCommerce.

Trading at only 5.75X this year’s earnings and paying a safe 2.7% dividend Big Lots is one of the most attractive dividend stocks in the sector. Big Lots dividend is safe too. The company has a history of increases as well but hasn’t made one in several years although it could at any time. Not only is the payout ratio a very-low 15% but the company has very little debt, a very large cash pile, and generates strong free-cash-flow.