Top Picks 2016: Nordstrom

01/19/2016 7:00 am EST

Focus: STOCKS

John Dobosz

Editor, Forbes Premium Income Report and Forbes Dividend Investor

Retailers of all types fell into an awful funk in the second half of 2015, observes John Dobosz, income expert and editor of Forbes Dividend Investor.

Even Seattle-based Nordstrom (JWN), which caters to high-income shoppers, has felt the pull of gravity.

The shares—our Top Pick for 2016—tumbled 40% from July through early January, putting the stock at a three-year low.

At 14 times expected current-year earnings, Nordstrom trades at a 20% discount to its five-year average P/E and 30% below its average price-sales ratio.

Gaping discounts to historical averages also show on other valuation metrics like price-to-cash flow, price-to-book value, and enterprise value to EBITDA.

Despite the fire-sale price of Nordstrom stock, revenue has yet to take a hit, with analysts forecasting sales in the current year that ends January 2016 to climb 7.5% to $14.5 billion. Earnings, however, are expected to decrease by 7.5%.

Nordstrom has enriched shareholders with consistent and sizable dividend hikes, raising the payout at a compound annual rate of 18.6% since 2005.

At a rate of $1.48 per year, Nordstrom shares yield 3%, and the payout has plenty of room to keep on rising, with Nordstrom expected to generate $9.81 per share in cash flow from operations this year.

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