Top Picks among Out-of-Favor Retailers

05/15/2019 5:00 am EST


Harry Domash

Publisher, DividendDetective and Winning Investing

Retail is a roughed up market sector; nevertheless, we are adding two retail ideas to our model portfolios, explains income expert Harry Domash, editor of Dividend Detective.

We’re adding Designer Brands (DBI) to our model portfolio. The company, which changed its corporate name from DSW to Designer Brands in March, operates those shoe stores that you see in outlet centers.

As the retail business has been evolving — such as dealing with competition from Amazon (AMZN) — Designer’s sales have been dropping.

However, Designer has recently taken steps to correct that problem, but most stock analysts aren’t buying the story. Thus, there’s not a lot of risk of disappointing analysts if the company isn’t successful, but good upside potential if it works. Designer Brands is paying a 4.5% dividend yield.

Kohl’s (KSS) — a buy in our speculative dividend portfolio — is implementing a new strategy to deal with changing market conditions.

Starting in July, the company will expand its free Amazon merchandise return program, currently being tested in 100 stores in Los Angeles, Chicago and Milwaukee, to all Kohl’s U.S. stores.

The program allows Amazon customers to return unwanted merchandise at Kohl’s stores rather than boxing and shipping the goods back to Amazon.

In the test program, some of those Amazon customers bought stuff at Kohl’s while they were there. If the test program results hold true for the entire chain, Kohl’s October quarter results should show a substantial revenue spike vs. year-ago.

Kohl’s issued a warrant to Amazon to purchase up to a total of 1.75 million shares of Kohl’s common stock at $69.68 per share. Kohl’s has around 163 million shares outstanding. Some pundits are speculating that Amazon might eventually acquire Kohl’s.

Most analysts rate the stock at “hold,” aren’t impressed. So there’s considerable upside potential if it turns out that management is onto something.

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