Macy’s Inc (NYSE:M), like most retailers, has suffered as competition from online retailers stoked fear throughout the industry. However, coming off a strong Christmas selling season, M stock has made some gains. Further, if one looks closely, Macy’s has maintained a profit margin
Hence, the benefits of owning M stock are twofold; a rising stock from a Christmas-inspired relief rally, and a large, growing dividend that pays investors to wait for a recovery.
M Stock Has Held Up well Against Amazon
Like most brick-and-mortar retailers, Macy’s stock has suffered from fear of Amazon.com, Inc. (NASDAQ:AMZN). However, after a brisk Christmas season filled the malls, we all should question this assumption. One good Christmas does not a retail comeback make, but this latest shopping season shows that the “Amazon will take over” narrative appears untrue.
Even Amazon itself confirmed the appeal of physical stores by both purchasing Whole Foods Market and opening physical bookstores.
The question on people’s minds is where our changing shopping habits leave a company like Macy’s. A few old-line retailers such as Nordstrom, Inc. (NYSE:JWN), Dillard’s, Inc. (NYSE:DDS), or Lord & Taylor LLC (owned by Canada’s Hudson’s Bay Co (OTCMKTS:HBAYF)) remain in business.
Still, when analysts discuss retailers from the mid-20th century that remain in existence, most of the attention goes to Sears Holdings Corp (NASDAQ:SHLD), J C Penney Co Inc (NYSE:JCP), or Macy’s. Of the three, only Macy’s has returned consistent profits, albeit at much lower profit levels.
As my colleague Laura Hoy believes, the probable failure of Sears and possible failure of JCPenney could benefit Macy’s stock. I happen to agree. Where I live in Dallas, the upscale shopping mall Galleria Dallas has enjoyed a revival after a large, nearby mall shut its doors. Macy’s could benefit similarly with the other two stores out of the picture.
Macy’s stock, like the stock of most retailers, has risen this holiday season as retail in general enjoyed a brisk Christmas. The rising tide lifted most boats, and M stock increased about 25% from its November lows.
Macy’s Stock Benefits Lots of Investors
Profiting on a stock depends on more than mere survival. For that reason, growth-oriented investors should not avoid Macy’s. Additionally, conservative and income-oriented investors should also look at this stock. Macy’s stock has just created an opportunity to provide both growth and income.
M stock currently trades at about 12 times current earnings and 10 times forward earnings. Like many of my colleagues have implied, these valuations imply an Amazon takeover of retail. More evidence has come to light showing that people want non-Amazon options. With the average retailer trading at around 26 times earnings, M stock remains a bargain.
Moreover, the company will pay shareholders well to wait for a comeback. The Macy’s stock dividend stands at 5.6% at its current price. Although Macy’s profits have not returned to the highs of previous years, the company still earns more than enough to cover its $1.51 per share annual dividend.
The dividend has increased every year for seven years. This does not compare to the 46-year streak enjoyed by owners of Target Corporation (NYSE:TGT). However, the streak is getting to the point that management would only cut it as a matter of company survival. If anything, management forgoing further increases remains a more likely worst-case scenario.
Concluding Thoughts on Macy’s stock
The beginning of the recovery in Macy’s stock provides both the benefits of growth from the stock recovery and a high-yield dividend that pays investors well to wait. While the fear of Amazon has sent profit margins and stock values reeling, Macy’s has held its profit margin. Surviving this threat will likely mean higher sales as competitors close their doors.
Moreover, now that the stock has started to recover, investors will enjoy both a rising stock price and high dividend payments. For stockholders who want to have their cake and eat it too, M stock offers the perfect dessert.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.