Earning Power: 3 Everyday Retail Stocks Yielding Over 3%

By Prakash Kolli, Wealth of Geeks

Many retail stocks benefited during the COVID-19 pandemic as consumers spent Federal stimulus dollars online. Now retail stocks are down along with the rest of the stock market. But this is an opportunity for average investors to get a jump on things by diversifying their portfolio into a variety of both ecommerce and brick and mortar retail stocks.

The pandemic and competition forced many companies to adapt and innovate.

Here are three everyday retail stocks yielding over 3%.

Best Buy – A Survivor

Best Buy is one of the largest pure-play electronics and appliance retailers in North America. The company is a survivor, having outlasted many of its brick-and-mortar competitors. Consumers may remember chains such as Circuit City, Radio Shack, Fry’s, H.H. Gregg, CompUSA, Tweeter, Crazy Eddie’s, and others. Today, Best Buy is a giant with 930+ stores in the US and another 120+ stores in Canada.

Best Buy struggled between 2012 and 2017 with declining or low comparable sales. However, the retailer’s fortunes have improved since 2018 as the company reduced store counts and moved more sales online. Furthermore, the pandemic drove sales of electronics for a total revenue reaching more than $51 billion in fiscal 2021.

Today, Best Buy is well-positioned to sell consumers mobile phones, TVs, appliances, computers, printers, and other items. In addition, Best Buy has the Geek Squad and the new total tech membership, which should help drives sales and services.

Best Buy is a dividend stock. The forward dividend yield is now 3.72%. The dividend is supported by a conservative payout ratio of about 30% and over $2,500 million in free cash flow (FCF). In addition, best Buy has a solid balance sheet with more cash than long-term debt adding to the dividend safety.

Best Buy’s last quarterly dividend increase was ~25.7% to $0.88 per share from $0.70 per share. The dividend growth rate was about 20% CAGR in the past 5-years. Best Buy has raised the dividend for 19 consecutive years, and the relatively low payout ratio supports future growth. The forward price-to-earnings (P/E) ratio of 10.4X is below the average in the past 5-years.

• Ticker: BBY
• Market Cap: $22.75 billion
• Annual Dividend Rate (FWD): $3.52
• Dividend Yield: 3.72%

Walgreens Boots Alliance – A Dividend Aristocrat

Walgreens Boots is one of the largest pharmacy retail chains in the US and UK, with over 13,000 locations. The company operates roughly 9,000 Walgreens stores in the US and 4,000 Boots stores in the UK, and stores in other locations for nine total countries. Major brands include Walgreens, Boots, Duane Reade, the No7 Beauty Company, Benavides, and Ahumada. Total sales were $132+ billion in the fiscal year 2021.

Walgreens’ stock price has been on a downward trend since 2015, following Walgreens merger with Boots. The retail giant struggled with merger integration and operational execution challenges. For perspective, the stock price traded at more than $96 per share in 2015 and bottomed at below $35 per share in 2020. The current stock price is ~$48.30.

Walgreens new CEO is selling the Boots chain and has asked bidders to submit firstound bids. Reportedly, several private equity firms are interested. In addition, the new CEO is partnering with VillageMD to open collocated primary care offices and pharmacies, providing healthcare and retail in one location.

Walgreens Boots’ forward dividend yield is ~4.0%. The company is known for its many years of dividend growth. The pharmacy retailer has increased the dividend for 47 years, and the stock is a Dividend Aristocrat. The dividend growth rate (CAGR) is slowing, but it is still respectable at ~9.0% in the past decade, approximately 5.2% in the past 5-years, and around 4.0% in the trailing 3-years.

In addition, the payout ratio is very conservative at ~36%, leaving room for future increases. This value also provides confidence about dividend safety. Walgreens Boots is trading below the average market valuation with a low earnings multiple of ~9.4X.

• Ticker: WBA
• Market Cap: $40.95 billion
• Annual Dividend Rate (FWD): $1.91
• Dividend Yield: 4.0%

Restaurant Brands International – Little Known

Restaurant Brands International is a consolidator of fast-food retail chains. The company now owns the Tim Hortons, Burger King, Popeyes Louisiana Kitchen, and Firehouse Subs brands. They count a total of about 29,000 stores located in 100 countries. A private equity firm, 3G Capital, controls it all. Total system sales were $35+ billion, and revenue was about $5.74 billion in 2021.

The stock price has fallen since its recent high in mid-2001 and is trading near a 52-week low. Several of the brands are experiencing slow recoveries or are in a middle of a turnaround. In addition, the fast-food business is very competitive. However, the company increases its store count and revenue by franchising its four brands with partners and has done so successfully.

The dividend yield is about 3.83%. However, the payout ratio is high at about 75%. Still, Restaurant Brands increased the dividend even during the COVID-19 pandemic and has reached the 10-year mark making the stock a Dividend Contender.

The dividend growth rate was about 27.9% in the past 5-years but has slowed down recently. Future increases may be muted. The stock’s price-to-earnings (P/E) ratio has come down to about 18.8X and is near the lower end of its range in the past decade.

• Ticker: QSR
• Market Cap: $25.67 billion
• Annual Dividend Rate (FWD): $2.16
• Dividend Yield: 3.83%

Three everyday retail stocks for investors to consider for their portfolios are Best Buy Co. (NYSE: BBY), Walgreens Boots Alliance (NASDAQ: WBA), and Restaurant Brands International (NYSE: QSR). Besides the solid dividend yields, all three stocks are dividend growth stocks with 10+ years of dividend growth

By Prakash Kolli