Three Factors For Department Store Investors to Consider: J.C. Penney Company, Inc. (JCP), Macy’s, Inc. (M)

Dividends

Even with sluggish growth, a department store can still serve as a good dividend pick, as long as enough shoppers show up for the store to maintain its payouts. Kohl’s looks the best here with a 2.8% forward yield and a 28% payout ratio. Macy’s has a lower forward yield at 2.1%, along with a slightly lower 22% payout ratio.

Dillard’s made a big dividend payout last year, announcing a $5 per share special dividend. This payout only happened because Dillard’s wanted to distribute cash before the fiscal cliff occurred though, so it won’t be a recurring event. Dillard’s now has a much less attractive 0.20% forward yield. Dillard’s does have lots of room for a dividend hike with a 3% payout ratio, though. J.C. Penney has big ticket expenses such as store remodels that come before dividends for now, although it could pay out dividends in the future if its turnaround strategy succeeds.

Takeaway

Macy’s low PEG ratio suggests that this store could be a good deal right now. A low PEG ratio also shows that Macy’s isn’t a value trap, a major risk in the department store business. Macy’s offers the second highest dividend in this group, and income growth expectations could mean higher dividends over the long term. Macy’s doesn’t win the price to book value comparison, but the department store still looks like the best pick overall in this group.

The article Three Factors For Department Store Investors to Consider originally appeared on Fool.com and is written by Eric Novinson.

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