I invest for income.  I need a dividend; I need a dividend that grows; I like low risk of bankruptcy and I love covered calls.   Not a unique strategy.   Many successful investors who live off of their portfolio income invest with a similar strategy.

In the retail space, we find low valuations and quite a bit of volatility.  Everybody has an opinion and it can change on a dime.  I named Kohl's, symbol KSS, as my first Dividend Machine pick for 2017 and it has been up and down.  Most significantly, though, is the cash it spins off to me through the dividend and through calls.

Target is a similar story.   In the charts below, you can see that Kohl's has a better call than Target.










Moreover, Kohl's has a higher dividend than Target:  KSS = 5.39%  yield TGT = 4.25% yield.
Kohl's most recent dividend increase is better:  KSS = 10% dividend increase TGT = 3.33% dividend increase.
Kohl's is a bit cheaper using P/E ratio:  KSS = 11.3 P/E ratio TGT = 12.26 P/E ratio.
Percent of earnings paid out in dividends is again won by KSS:  KSS 50% payout ratio TGT = 61.2% payout ratio.
Lastly, KSS beats TGT on D/E (debt to equity ratio):  KSS = .5561 D/E ratio TGT = 1.103 D/E ratio.

Put it all together and KSS is a nice stock in a volatile space that will reward the income investor with high dividend yield, robust dividend growth, and covered call option opportunity.

M* MoneyMadam
Disclosure:  long KSS with calls long TGT

http://www.themoneymadam.com/2017/01/kohls-kss-first-2017-dividend-machine.html

http://www.themoneymadam.com/2017/04/covered-calls-2-edged-sword-gild-kss.html

http://www.themoneymadam.com/2017/05/kohls-kss-option.html

http://www.themoneymadam.com/2017/07/income-investors-should-consider-kss.html

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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.

DIVIDEND INCOME FROM KSS

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.   

CALL INCOME FROM KSS

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.  

SUMMARY

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:

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Kohl's, KSS first 2017 Dividend Machine

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

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KSS and MRK questionable for 2016

Looking for stocks in this crazy market that have solid balance sheets and good dividend cushions.  Should they also meet my 2016 criteria, I will add them to the portfolio.

Merck MRK

I Found 37 stocks that on first pass met my 2016 criteria but when you dig deeper few actually make the grade.

Merck just misses the grade on only one criteria and that is dividend growth. My criteria are set at a minimal annual average of 4% dividend growth. MRK comes in at 3.82% for the past 5 years. You could average it up to 4% which is why I am taking a serious look at adding MRK. See the table below.

MRK 2016 Portfolio Fundamentals



I currently hold Merck and have to decide if I should add.   Because the market is so sloppy, I would sell a call on any new position while staying long on my original holdings.  A disciplined approach is the best way to deal with a market like this.  It eliminates the emotions that go with investing.  With that in time, I just may take my time and hope that I do not miss snagging this good stock at a low.

Disclosure: Long MRK and may add.


Kohl's KSS

This stock has a lot going for it including a dividend yield of 3.59%.  Their four year dividend growth rate of 20% per year makes me take notice.  I use D/E equity ratio (debt to equity) to measure balance sheet strength and KSS sports a D/E ratio of .5831.

Revenues are the mother's milk of dividends and this year I am looking more carefully at revenues.  And that is the rub with KSS.  Last three years of revenue growth has been tepid at just over 1%.

Earnings are robust at $3.75 per share and could easily cover continued dividend increases, but eventually KSS will have to generate more revenues.  They have been able to increase earnings at a clip of 13% per year so they know how to manage their finances.

Icing on the cake of this retailer is covered call activity.  Today an April $55 call fetched around $1.80.

The table below illustrates the fundamentals that make KSS a consideration.



I will keep you posted if I add this stock.  Currently I have no position in Kohl's.

M*TheMoneyMadam

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