Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Kohl’s Corporation (NYSE:KSS) has been paying a dividend to shareholders. Today it yields 3.7%. Should it have a place in your portfolio? Let’s take a look at Kohl’s in more detail.
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5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does Kohl’s fit our criteria?
The company currently pays out 39% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 50% which, assuming the share price stays the same, leads to a dividend yield of around 3.9%. However, EPS is forecasted to fall to $5.67 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Kohl’s as a dividend investment. It has only been consistently paying dividends for 8 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Kohl’s generates a yield of 3.7%, which is high for Multiline Retail stocks but still below the market’s top dividend payers.
Taking all the above into account, Kohl’s is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three pertinent factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for KSS’s future growth? Take a look at our free research report of analyst consensus for KSS’s outlook.
- Valuation: What is KSS worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether KSS is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.