3 Reasons to Buy This Blue Chip Retail Stock
Long-term investing can be much easier by insisting on investing only in companies with a proven track record. This investment philosophy helps investors avoid having to sell below-average holdings at a loss, as it helps weed out below-average quality companies.
With a market cap of $67 billion, TJX Companies (TJX -0.21%) is the world’s largest off-price retailer. And it looks like the stock would be an important addition to income investors’ portfolios. Here are three reasons.
1. The company just had a terrific first quarter
TJX announced excellent results for the first quarter ended April 30. The company, known for its TJ Maxx, Marshalls and HomeGoods stores, posted net sales of $11.4 billion in the quarter. This equates to a growth rate of 13.1% over the previous year.
What were the factors driving this respectable sales growth? The company’s net sales in the United States edged up 1.4% year-over-year to $8.9 billion in the first quarter. TJX’s same-store sales were flat in the first quarter. That’s impressive considering it faced a tough comparison run the year before because of the $1.9 trillion economic stimulus from the American Rescue Plan Act. The company’s total number of stores in the United States increased 1% from the prior year period to 3,398. This is the other piece of the puzzle that explains TJX’s net sales growth. during the quarter.
Internationally, TJX had a low bar to break in the first quarter. Indeed, most of the company’s stores in Canada, Europe and Australia have been temporarily closed to comply with government-imposed shopping restrictions aimed at slowing the spread of COVID-19 during the COVID-19 period. ‘last year. As a result, TJX’s international net sales soared 91.5% year over year to $2.5 billion in the quarter.
The company posted non-GAAP (adjusted) diluted earnings per share of $0.68 in the first quarter. This equates to a growth rate of 54.5% over the previous year. Besides TJX’s higher net sales base, this was the result of two variables. First, the company’s non-GAAP net margin increased 180 basis points year over year to 7.1% in the quarter. Second, share buybacks caused TJX’s diluted weighted average number of shares outstanding to fall 2.6% to 1.2 billion in the first quarter.
2. Strong dividend growth can continue
TJX increased its quarterly dividend per share by 13.5% in March. And I am convinced that more dividend increases will occur in the years to come. Indeed, on the one hand, analysts predict that TJX will generate annual earnings growth of 12.8% over the next five years. And the stock’s dividend payout ratio is expected to be 35.9% for its current fiscal year. This should give TJX the ability to increase its dividend based on its medium-term earnings.
The annual dividend growth in young teens is an attractive proposition. And as if that weren’t enough for investors, the stock’s 2.1% dividend yield is moderately higher than the S&P500 return of 1.6% of the index.
3. A wonderful company at a fair price
TJX is a company with stable fundamentals that pays its shareholders a market-leading dividend. And to top it off, the stock appears to be reasonably priced. This is supported by its forward price-to-earnings ratio of 18, which is just below the 18.2 average for the retail clothing industry.
A quality TJX Companies stock arguably deserves to trade at a slight prime to his peers, not at a discount. This is what makes the stock an underappreciated retail winner for investors to consider buying.