I was lucky enough to be invited to Manhattan last week to hang out with some friends. In addition to exploring the city by leaning off a 1,200-foot-high platform in Hudson Yards, and spending over 6 hours at the Metropolitan Museum of Art, I got to see the city decked out in holiday spirit.
Although I wasn’t “brave” enough (or really crazy enough) to fight the crowds for the Rockefeller and Wall Street tree lightings, I still saw both trees lit up in all their glory. We also checked out the Christmas Market in Bryant Park and the one in Grand Central Station.
Holiday cheer was everywhere… and people were buying into it… literally swiping their credit cards right and left. The food, the drinks, and of course picking out presents, all have a cost, and we know consumers are ready to pay it.
Estimates tell us the average American spends around $1,000 on gifts and holiday items each Christmas. Collectively, we’re spending more and more on Christmas each and every year. This happens despite concerns about the economy and politics—and the fact that US credit card delinquencies continue to climb higher.
So, how does this put more money in our pockets as dividend investors?
Well, if a company has a spectacular holiday season, it will show up in its fourth-quarter earnings numbers. And if Q4 sales are able to offset slower growth during the rest of the year, that’s the bonus whipped cream on your pumpkin spice latte.
In turn, investors will get excited and send share prices higher during the mid-January through early-March earnings season.
If we want to maximize our yield, we need to get shares at the best price and that means spotting and getting ahead of the trend.
Black Friday Stats Are Optimistic
Although I found multiple sources that claim many people start shopping in October, there is no doubt that Thanksgiving is the official kick-off of the shopping season. The five days from Thanksgiving through Cyber Monday brought in over $41 billion in sales, up 8.2% from last year.
We know that our spending is tracked, so it’s interesting to see how shopping habits have changed through the years. For example, buy now, pay later plans were used for $686.3 million of these transactions. It’s pretty clear that through the weekend—and even on Black Friday—shoppers were looking for online deals instead of fighting the crowds and standing in line at stores.
Looking just at Cyber Monday, shoppers spent $13.3 billion, up 7.3% from last year. More than half of these sales came from mobile devices. To put that in perspective, mobile shopping was only 33% of Cyber Monday sales in 2019.
When I think of Black Friday shopping, I think of doorbuster deals on small kitchen appliances and flat screen televisions. I’ll admit I haven’t joined the hordes of Black Friday shoppers for at least 10 years. So, it was interesting to see that toys were popular this year. Top sellers included Harry Potter Lego sets, “Wicked” movie merchandise, and Disney Princess dolls, just to name a few.
All this means if we’re looking for a potential investment, we want a company that sells popular brands across multiple categories including toys. And the company must have an online presence.
The Search for Discretionary Dividends
It’s almost certain that we’ll always have at least one consumer staple in our active Bedrock Income portfolio. By design, dividend investing requires holding our positions for a longer period of time. That can be a year or two, or it can be for decades.
Consumer staples are just that, which makes them a priority in the consumer’s budget. These companies will sell the food and drink consumed during the holiday. Everything else is considered consumer discretionary.
To search for potential investments, I set up my stock screener with these filters:
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GISC sector: consumer discretionary
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Listed on a major US exchange
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Dividend yield of at least 3.5%
The result was 43 stocks and included Best Buy Co. (BBY), Macy’s (M), and Carter’s Inc. (CRI). Near the top of the list is Kohl’s, a company I get asked about a lot right now, so let’s take a closer look.
Shares of Kohl’s Corp. (KSS) are down 76% from their January 2022 highs. Its bargain basement price means shares now pay a whopping 13% dividend yield. I love a double-digit yield as much as the next girl, but we would definitely be taking on more risk to collect it.
In its latest earnings release, Kohl’s missed expectations and lowered its full-year guidance for the second time this year. The company is in the midst of a turnaround plan, something we’ve seen from most companies in the past five years.
During its earnings call, the company admitted that some of its earlier decisions were not the best… and has reversed them.
Now, I think the company deserves props for owning its mistakes and changing course. But that still means the company is not as far along in the plan as expected. On top of all that, the CEO plans to step down in January. I’m not sure if that’s a good or a bad thing.
All that being said, I like Kohl’s right now as a speculation. This is not a stock to put in your Bedrock Income portfolio, and it’s even a bit risky for your Current Yield section. The high yield definitely comes with added risk. But I think it’s an interesting speculation on the holiday season and beyond.
For more income now, and in the future,
Kelly Green
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© Mauldin Economics
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