Retail Stocks: Staples (SPLS)
Staples (SPLS) stock has crashed 27% year-to-date in 2014, and is off 50% since the start of 2010. But a big dividend yield and overly negative sentiment could signal a bargain in the office supply store right now.
It’s not hard to understand why Staples has suffered. For starters, revenue has been struggling with FY2014 sales down about 5% over FY2013 numbers, and the company just announced it would be closing 225 locations.
However, there are reasons to like SPLS stock amid the mayhem.
Staples has a decent online sales engine; Staples.com is the No. 2 e-commerce player in the U.S., according to Internet Retailer data. Nearly half of the company’s sales are generated online — so while stores are closing, that might not mean all that much of a sales hit if SPLS pivots correctly.
Also, unlike other troubled retailers, Staples is actually quite profitable. And while those profits don’t burn down the house, they are big enough to support a hefty 4.2% dividend yield. Furthermore, that annual dividend of 48 cents per share annually is up about 118% from 22 cents per share annually back in 2006, just eight short years ago. The icing on the cake is that the dividend is 48% of earnings right now, meaning it is sustainable and still ripe for possible increases.
Staples has been battered by negative sentiment around weak business spending, weak retail results, the pressure of e-commerce and a host of other factors. The company now has a forward P/E of less than 12, business is stable, even if it’s not growing and the dividend is juicy. The sellers seem to have already sold … so why not take a flier on this unloved stock?