Tax refunds from the Internal Revenue Service (IRS) are up this year. The tax agency reports the average refund issued so far in 2024 is worth $3,182, up 5.1% from $3,028 last year. This is good news for tax filers who likely already have in mind what they will do with their refund. And it’s a safe bet that a lot of people will spend at least a portion of their tax refund at retail outlets. After all, spending by consumers accounts for nearly 70% of the American economy.
The retail sector in the U.S. remains strong. In February of this year, retail sales rose 0.6%, helped by spending on big ticket items such as motor vehicles. In the past year, the S&P retail index has gained 16%. While that trails the 24% increase in the benchmark S&P 500 index over the same period, it shows gathering strength in the retail sector, which had struggled coming out of the Covid-19 pandemic. Here are three must-own retail stocks primed for a tax refund rally.
Costco Wholesale (COST)
Two exciting things are happening at Costco Wholesale (NASDAQ:COST) right now. First, the company raised its quarterly dividend by 14%. Second, the warehouse club is selling an unprecedented number of gold bars as the price of bullion trades at an all-time high above $2,400 an ounce. Going forward, Costco will pay its shareholders a dividend of $1.16 per share, up from $1.02 a share previously. The new dividend will be paid on May 10 to shareholders of record on Apr. 26.
At the same time that Costco hiked its dividend. A new report from Wells Fargo estimates the grocery store retailer is also selling $100 million to $200 million a month of gold bars. Costco sells one-ounce bars made of pure 24-karat gold. While the price is not disclosed online to non-members, it’s estimated the bars sell for about 2% above gold’s spot price.
It wouldn’t be urprising for people to use their tax refund to buy some gold bars at Costco. While they’re at it, they should also buy COST stock. Shares have risen 49% in the last 12 months, including a year-to-date gain of 12%.
Nike (NKE)
Running shoe and athletic apparel maker Nike (NYSE:NKE) has been a poor investment over the last few years. Through 12 months, NKE stock is down 27%, including a 14% drawdown this year. However, in a recent note to clients, Bank of America upgraded Nike’s stock to a “buy” rating from “neutral.” It also raised its price target on the shares to $113 from $110. The analysts say the stock looks to have bottomed and cited the Paris Olympics this summer as a potential catalyst.
The upgrade to NKE stock comes as the company reverses course and again embraces wholesale retailers as an important sales channel. Previously it focused on selling direct-to-consumers through its own stores and website when the Covid-19 pandemic began in 2020. Nike is also undertaking an aggressive cost-cutting program. The retailer announced it is cutting 2% of its global workforce, or more than 1,600 jobs. It seeks to lower expenses amid weak demand, particularly in the key market of China.
With spring here, folks could use part or all of their tax refund to splash out on a brand new pair of Nike running shoes.
Dick’s Sporting Goods (DKS)
Dick’s Sporting Goods (NYSE:DKS) continues to be one of the best retail stocks to own. The purveyor of sporting goods equipment that ranges from golf clubs to footballs has seen its stock rise 46% over the last 12 months. That includes a 39% increase in 2024. Over the last five years, DKS stock has gained 430%. Like Costco, Dick’s recently raised its dividend. It is hiking its payout to shareholders by 10% as the company reported its biggest quarterly sales in its 76-year history.
Dick’s Sporting Goods will now pay a quarterly dividend of $1.10 per share, up from $1 previously. The company announced the dividend increase as it reported earnings per share (EPS) of $3.85 versus $3.35 that was expected on Wall Street. Revenue for what was the fourth quarter of 2023 reached a record $3.88 billion, ahead of the $3.80 billion forecast among analysts. Sales were up 8% from a year earlier. In terms of guidance, management said that Dick’s should earn $13.25 a share for all of this year on revenue of $13.13 billion. Both estimates were in line with Wall Street’s outlook.
With father’s day coming, why not spend a tax refund on a new set of golf clubs or other sports gear for dad?
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
