Macy's - Retail Dividend Stock Analysis
By:NewsyStocks   Wednesday, January 11, 2022 10:18 AM

Investors often look at the retail sector to determine how the overall economy is faring. At this point, there is no clear signal from the sector. Some names are struggling more than usual, while others seem to be thriving despite less than ideal economic conditions. Holiday spending in the month of December can make or break the year for these retail names. A major winner has emerged in the past few months in this important industry, and last week's news was further evidence of this company's momentum. Macy's (NYSE:M) raised its 2011 full-year guidance from $2.73 per share to $2.78 per share. The company had already raised guidance three times last year, so expectations have constantly been on the rise. In addition to the positive earnings guidance, Macy's executives announced last week that the company was doubling its dividend payout to 20 cents per share on a quarterly basis. Let's examine Macy's internals and see if this positive momentum story can continue to be a dividend grower.

Until recently, Macy's wasn't really a name that dividend investors would have had on their radar. The company doubled its dividend payout in May of last year from 5 cents to 10 cents, and last week they doubled the payout for the second time in just eight months. This is still not a high-yielding stock, but its 2.31 percent dividend yield is higher than most in the retail sector. It should be encouraging for investors to see that Macy's dividend payout ratio is just 22 percent. A low payout ratio shows the company has room left to hike the dividend in the future based on the strength of the balance sheet.

Macy's began as a dry goods store more than 150 years ago. It has been an impressive rise to the top over the years for this retailer. Macy's is now the nation's number one department store chain with around 850 stores. In fiscal year 2011, Macy's is expected to rack up more than $26 billion in sales.

One of the best ways a corporation can show confidence in its business is to buy back its own stock. Macy's authorized another $1 billion in share repurchases last week, which brings the total authorization to $1.6 billion. As of December 31, the company had bought back $250 million worth of its own stock, so expect Macy's to be in the market purchasing their stock quite a bit in the coming months.

What is behind Macy's success over the past couple years? Macy's has done a great job broadening its online footprint. Online sales soared by nearly 36 percent in December 2011. Improved returns at the company's credit card business have also helped boost the bottom line. Management is doing a nice job with the all-important inventory control. Controlling inventory had been an issue in the past at Macy's, but this management team seems to have fixed that problem. It is open for debate as to what will happen with consumer spending over the next few years. Clearly, if spending drops precipitously, Macy's will be in a tough financial spot. At the same time, this is a firm that has strong free cash flow and a solid balance sheet. The newfound commitment to returning capital to shareholders should continue as long as the economy stays on its current path. Macy's hasn't been considered a serious dividend player in the past, but dividend investors will want to keep an eye on this name going forward.