Tuesday, January 17, 2017

Kohl's, KSS first 2017 Dividend Machine

English: Logo of Kohl's Department Stores for ...
English: Logo of Kohl's Department Stores for use as illustration in Wikipedia, now with transparent background. (Photo credit: Wikipedia)









I bought my first 2017 Dividend Machine today.  Kohl's symbol KSS meets all my criteria.  My buy price was $41.88.

I immediately sold an April 21, 2017 $47.50 call for $1.25.  The table below presents the data.





KSS stock price tanked on news of poor Christmas sales and their slow entry into the e-commerce space.  Yet the stock meets all my criteria.  I have been through this before when profiling a stock and find that sticking to my knitting is still the best technique.

2017 DIVIDEND MACHINE CRITERIA for KSS

KSS makes more money than it pays out in dividend and this has been a trend for more than 5 years.  Current EPS are $3.27' the current annualized dividend is $2.00.  Although I don't use price/earnings ratios in my selection criteria, I don't like a stock with a P/E that is well above their historical norm. KSS's P/E ratio is 12.84. 

Dividend yield is very important as is dividend growth.  The yield at the price I bought today is 4.9% well above what is available in any U.S. treasury bond.  With a three year dividend growth of over 14% per year, this stock has demonstrated dividend growth.   Their December quarterly dividend in 2013 was $.35.  Their December quarterly dividend in 2016 is $.50.  Each of the past four quarterly dividends have been $.50 so I would expect an increase this spring.  If that does not occur, I will be very disappointed.

A strong balance is always important.  I use D/E (debt to equity ratio) and KSS passes this test with flying colors.  Their D/E ratio is .5471.  Notice that JWN (Nordstrom's) D/E is north of 3.

Kohl's is not a revenue growth juggernaut.  However, KSS does have a stable or flat revenue trend and similarly their EPS have always been greater than dividends paid out. 

The final icing on the cake is the robust calls that are available.  I was not planning to pick a stock that had a call immediately available.  I am patient and could wait.  But this call was too good to pass up.

In summary KSS meets my criteria and is now my first 2017 Dividend Machine.

M* MoneyMadam

Disclosure:  Long KSS with calls