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.


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