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05-23-2014, 09:56 AM
(This post was last modified: 05-23-2014, 10:16 AM by earthtodan.)
My portfolio has almost no exposure to consumer cyclicals, particularly retail. After talking to an investing buddy, I realized I should really consider buying some exposure to a continued upswing in consumer spending.
Enter FL. Foot Locker has experienced a healthy recovery since the recession, and doesn't appear to have been brought down by Zappos/Amazon. They are growing their dividend, and the payout ratio stands at about 25%. Before the recession, they were also growing the dividend, and held it flat (but not cut) through 2009 and 2010. The balance sheet is cash strong and debt free. It looks like a decent value on Finviz, although Finviz hasn't been updated since this morning's earnings beat, which probably means the P/E is actually better than it shows. What do you all think?
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I've looked at Foot Locker in the past as well but don't own it. It seems to be fairly valued here and the financials look good with little debt and nice cash flows.
Another specialty retailer to consider is Petsmart (PETM). They've also had a great growth rate and have a similar yield but is a little cheaper now after a huge pullback.
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I've looked at PETM, and I like the defensive nature and recent dividend growth. It held up well during the recession, and it's certainly more defensive than a shoe store. The recent earnings report and selloff could be a buying opportunity, but then, I don't know enough to say that the market is wrong.
I've also looked at FL. I like that they didn't cut their dividend during the recession. What I don't like about them is their low yield and the past 3 raises have averaged 10%. For such a low starting yield, I would want a much bigger raise. I will relook at them if their price drops and the yield is closer to 2.5%.
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Another specialty retailer to mention is Gamestop Corp. (GME). It's not for the faint of heart as its one of the highest shorted stocks in the market, but its been growing the dividend quickly, up to 3.4% yield, and has a buyback program worth about 10% of outstanding shares. The company has great cash flows and little debt.
Its recent analysts presentation on the corporate website has a lot of great info and there have been a few positive articles on Seeking Alpha in the last week.
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Interesting thread. As an avid gamer, I've had GameStop on my watch list for a long time. But I've never pulled the trigger. I'm having enough trouble with getting comfortable with mainstream bricks and mortar retail. I don't think I could stomach specialty names like FL, PETM, or GME.I'm not a pet owner, so I have no personal experience with how online might be disrupting that space. For shoes, I prefer the in-store experience, but mainly buy online just because of time constraints. And games I only buy online. I know GME is working on other revenue streams, but if I'm worried about TGT, I don't see how I can add these names to a long-term, sleep-well-at-night DG portfolio.
