Companies in the retail industry were some of the most impacted during the Covid-19 pandemic. Many physical store locations were closed as social distancing restrictions were put in place to slow the spread of the virus.
As a result, many retailers paused or cut their dividends as a means to protect the company during the unprecedented period.
Now that the worst of the pandemic appears to have passed, some retailers are boosting their dividends, and by a sizeable amount. Some names that raised their dividend during the worst of 2020 have continued that trend as well.
I will examine three companies that recently raised their dividends by approximately 10% or more.
Dollar General
The first retailer to discuss is Dollar General Corp. (DG, Financial), a leading discount chain. The $52 billion company has annual revenue of more than $34 billion.
Dollar General has a massive footprint, with more than 18,000 stores in the U.S. The company estimates that 75% of the nation’s population lives within a five-mile radius of a store. This provides a massive size and scale that other retailers struggle to replicate. Dollar General stores are often smaller than their big-box peers, meaning that servicing a smaller population isn’t the impairment to the business as a larger discount chain might encounter. In fact, most stores are located in towns with less than 20,000 people.
The company’s business model often works regardless of economic conditions. Demand for products, most of which sell for less than $5, is appealing to those at the lower end of the economic pay scale regardless of the economic backdrop. During a recession, lower-priced merchandize becomes more appealing even to those at the higher end of the pay scale, making Dollar General one of the more recession-resistant retail names.
Dollar General is also investing heavily in its business, opening new stores as well as increasing the number of cooler cases. Aggressive expansion of stores allows the company to reach more customers and the coolers offer an increased number of products that can help to drive store traffic.
Unlike many retailers, Dollar General performed well during the worst of the pandemic, with earnings per share growing 60% in 2020. The company was able to raise the dividend 12.5% in 2020 and 16.7% in 2021 as a result of the strong performance during a difficult period. The company followed those sizeable increases up with a 31% increase for the upcoming April 19 dividend payment date, giving Dollar General eight years of dividend growth. Shares yield just 1% today.
The GF Value chart shows the stock to be trading just below its intrinsic value as measured by GuruFocus.
With a share price of $222.63 and a GF Value of $231.92, Dollar General is trading with a price-to-GF Value ratio of 0.96. GuruFocus rates the stock as fairly valued.
TJX Companies
Next up is TJX Companies Inc. (TJX, Financial), a top off-price retailer. The company is valued at close to $77 billion and generated revenue of almost $49 billion last year.
TJX Companies is well entrenched in its industry thanks to its footprint. The company has nearly 4,700 stores spread out over multiple brands, including T.J. Maxx, Marshalls and HomeGoods. The company also has an international presence with operations in nine countries, including the U.S., Canada and Australia.
The company has positioned itself as a top name in off-price retailing, which makes it an appealing partner for companies wishing to sell off excess merchandise or last season’s offerings. This allows the company to market products to customers who want the name brand, but don’t necessarily want to pay name brand prices.
This model has been so successful that TJX Companies has only experienced a decrease in annual comparable sales twice in the last 40 years. These occurred, of course, around the onset of the Covid-19 pandemic, when the company was forced to close almost a quarter of its locations.
As a result of the pandemic, TJX Companies stopped paying its quarterly dividend in mid-2020. Then, in early 2021, the company not only reinstated its dividend, but increased it by 23%. The payment stayed the same for five quarters, but was recently raised 13.5% for the June 2 payment date.
A dividend suspension is rarely a positive, but TJX Companies has generally been a very strong dividend growth player. The company had raised its dividend for the previous 23 years prior to being cut. The initial raise following the dividend reinstatement and the most recent increase should be considered positive signs the company has overcome the worst of Covid-19. The stock yields 1.9% at the moment.
The GF Value chart shows the stock to be trading at a meaningful discount to its intrinsic value.
TJX Companies is trading at $60.27 currently. With a GF Value of $75.38, this implies a price-to-GF Value ratio of 0.80. Shares would return 25% were they to reach the GF Value. TJX Companies, currently rated as modestly undervalued, hasn’t traded with this high of a discount to its GF Value since 2020.
Williams-Sonoma
The final name to discuss is Williams-Sonoma Inc. (WSM, Financial), a specialty home goods company. The $11 billion company had sales of more than $8 billion in its most recently completed fiscal year.
The home category has an estimate market of $700 billion, which means plenty of room for growth for the top names in the space. Williams-Sonoma has multiple brands that help appeal to a wide number of customers, including Pottery Barn, West Elm, Williams Sonoma and Pottery Barn Kids & Teen. These are typically high-end, quality products that create brand loyalty among customers.
Williams-Sonoma has successfully created an e-commerce channel that has mitigated much of the impact from the rise of Amazon.com Inc. (AMZN, Financial) and other online shopping channels. The company’s e-commerce business has been so successful that it not contributes almost two-thirds of annual revenue.
The strength of the company's online shopping business helped Williams-Sonoma navigate the Covid-19 recession very well. It actually benefited from the forced closing of stores because of the pandemic as consumers took advantage of the company’s already entrenched e-commerce channel. Williams-Sonoma saw its earnings per share nearly double in 2020 as a result. This was a record for the company that stood just one year as its earnings per share came close to doubling again in 2021.
Growth in this channel means less margin pressure than traditional brick-and-mortar retailers. Williams-Sonoma also expects to decrease its physical store locations 25% from 2020 levels by 2025 as the company continues to become more reliant on e-commerce.
Williams-Sonoma was unlike most retailers in its business performance during the worst of the pandemic that it was in a position to grow its dividend by 10.4% in late 2020. This would be solid growth in most years, but the company was able to raise its dividend twice the following year for a total of a 34% increase.
The retailer announced last month that it raised its dividend another 9.9% for the upcoming May 27 payment date. This latest raise marks the fourth raise in eight quarters and extends the company’s dividend growth streak to 16 years. Williams-Sonoma yields 2.2%.
Even with the positive tailwinds the company has working in its favor, Williams-Sonoma is trading just above its intrinsic value according to the GF Value chart.
With a share price of $143.74 and a GF Value of $133.92, Williams-Sonoma has a price-to-GF Value ration of 1.07. The chart above shows that Williams-Sonoma hasn’t traded this close to its GF Value since late 2020. Shares are rated as fairly valued.
Final thoughts
Retail was one of the industries that bore the brunt of Covid-19 pandemic. Store closings hurt most companies, resulting in dividend cuts and suspension. There were some, such as Dollar General and Williams-Sonoma, that were able to raise their dividends, but most, like TJX Companies, were forced to cut or suspend theirs.
With the worst of the pandemic likely behind us, the strong retailers have continued to thrive, which has enabled high levels of dividend growth. Dollar General and TJX Companies rewarded shareholders with double-digit increases recently. Williams-Sonoma’s most recent raise was a tick below the double-digit threshold, but it does come on the heels of two very sizeable increases that were given last year.
For investors looking for dividend growth from the retail sector, Dollar General, TJX Companies and Williams-Sonoma all recently rewarded shareholders with strong raises. This suggest that any of the three could make for a good addition to a dividend growth portfolio.
