The U.S. consumer market remains strong early in 2020, but e-commerce continues to reshape the retail world, and investors need to be cognizant of the fact that the current run of record economic expansion won’t last forever. However, that doesn’t mean giving up on the brick-and-mortar space altogether. It might seem counterintuitive, but high-quality retailers can actually be great vehicles for stock gains in a volatile market — you just have to be selective with your choices.
The companies with the advantages needed to thrive in the new world of retail may actually be able to consolidate their share of the market and deliver great returns for shareholders. For investors looking for dividend-paying retail plays that can keep beating the market and help pad an investor’s portfolio, The TJX Companies (NYSE:TJX), Walmart (NYSE:WMT), and Costco (NASDAQ:COST) stand out as the best buys in 2020.
1. The TJX Companies
The narrative in the retail space has been dominated by the effect of e-commerce, but that doesn’t mean that there aren’t brick-and-mortar-focused chains posting great results. The TJX Companies is a standout example in that mold. The off-price retail conglomerate operates bargain-focused chains, including TJ Maxx, Marshalls, HomeGoods, and HomeSense. It posted an impressive 4% growth for same-store sales last quarter — along with 7% growth for revenue and 8% growth for non-GAAP (adjusted) earnings per share.
Just in case you’re worried that this e-commerce-defying performance stemmed from a favorable comparison distorting the picture, the company posted 6% same-store sales growth in fiscal 2018, 2% growth in 2017, and 5% in 2016. In fact, the company’s same-store sales have declined only once in its 44-year history.
Take a look at the dividend-adjusted total return for TJX Companies across the three-year period starting at the beginning of the 2008-09 Great Recession:
The company continued to expand its retail square footage during the worst of the Great Recession, and it dramatically outperformed the vast majority of other players in the retail category. Same-store sales climbed 1% in 2008, 6% in 2009, and 4% in 2010 — with total revenue up 4%, 7%, and 8%, respectively, across the corresponding periods. People aim to spend less during a recession, but they’ll still need clothes and home furnishings, and many shoppers will still be looking for name brands or otherwise high-quality offerings — even if they’re more price-conscious.
TJX’s dividend yield comes in at roughly 1.5%, and the company has boosted its payout on an annual basis for 23 years running. The company’s shares trade at roughly 24 times this year’s expected earnings and offer an appealing combination of dividend-growth and capital-appreciation potential.
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