Tuesday, July 25, 2017

Income Investors should consider KSS Kohl's

I was recently watching Jim Cramer's show on CNBC when he discussed differences between investing and trading.   Since investing is a long term project, when investing, he said, you want the price of the stock to initially go down so you can buy more.  Trading is a short term project.  When trading you want the stock price to go up so you can sell and move on.

When I write about a stock in this blog it is strictly from an investor's viewpoint.  Moreover, I invest for income as do my readers.   If you take Cramer's advice KSS, Kohl's is a stock to consider.

  • Income investors do not sell shares to pay their bills, they use stock dividends to provide cash flow.
  • Dividend growth investors expect their stocks to increase their income over time.
  • Dividend investors are willing to add to positions when stock prices sink below their basis.
  • Income investors also use covered calls to boost their cash flow.

Kohl's was my first Dividend Machine in 2017 and boy have I gotten a lot of bad mail about that one.  I am used to that and I have no choice but to hold KSS because I do not trade, buy or sell, any holdings in the portfolios I publish.   As an income investment KSS has been a good one.  And for investors, KSS also provides the very opportunity Cramer presented   The stock price has gone down.


I have posted several blogs about Kohls, symbol, KSS.  I like it for income.  Once source of income  has been the dividend.   KSS pays a dividend of $2.20 annually for a yield of 5.4%.  Income from dividends since establishing a long position in KSS on January 17, 2017 @ $41.88 has been $1.10.  It is significant to note that Kohl's most recent dividend increase was 10%.

Dividend income from KSS on the first 100 shares held since January 17, 2017 was $110.00.   


At the same time I wrote about adding KSS in January, I sold (also known as write) a call.  I picked an April $47.50 strike price and received $1.25 per share in call premium or $125 for the 100 shares.  I liked the expiration date because it was after the first dividend opportunity in March providing another $55 of income.

This April $47.50 call expired.  On the expiration date KSS closed at $40.07. Upon expiration, I held. In May I received an alert that calls were selling well.  On May 10, 2017, I sold another call.  This time I selected a July $45 strike and received $1.00.  Again, I selected a strike date after the next dividend which was in March so that I could book both the call premium and hopefully get the dividend.   KSS was trading at $40.34 at the time.

 This $45.00 call also expired and I continued to hold.  On Monday, July 24, 2017 I sold another call.  I selected an October $45 strike and received $.90.  By now you see how these rolling calls work.  I should get the September dividend since the call expiration date is after the next expected ex-dividend date.

On Monday, KSS was trading at $39.36.   Here is where I employed Cramer's advice and added to my position @ $39.36.

The table below illustrates the call income received.  Note that the first two calls were one contract each.  One contract is equal to 100 shares.  The final call was on two contracts or 200 shares.

Rolling calls every 90 days is an excellent tool for income investors.  Not all stocks provide this opportunity.  KSS and a few others do.  


If you calculate this income experiment using only the original 100 shares bought in January, total income on those shares is as follows:

Any investment that you hold for just over 6 months that earns you 10% in income is a good investment for income investors.

KSS is in a difficult industry, brick and mortar retail.  It is not a growth stock.  KSS has decent fundamentals.  With a D/E ratio (debt to equity ratio) around .53, their balance sheet is solid.  Revenues have slowed but remain solid.

When I sold the July call in May, I used another of Cramer's words of wisdom for guidance.  Basically he opined that you need not give up on retail.  He specifically discussed KSS.  You can hear that broadcast on this link.   http://www.cnbc.com/video/2017/05/10/cramers-stop-trading-kss.html

In a recent interview, KSS's president suggested they are optimistic.  His plan is to steal share from struggling competitors.   See this video on CNBC.  http://www.cnbc.com/2017/07/18/kohls-ceo-is-out-to-steal-customers-from-its-struggling-rivals.html

For income investors, KSS is a good investment right now.  The retail space is challenging without a doubt.  Yet, KSS seems to have the fundamentals needed to support the dividend and the strategy to provide speculation on potential which leads to covered call income.

M* MoneyMadam
Disclosure:  Long KSS with calls

Monday's Call: