Consumer Goods: Why Macy's Is a Great Retail Income Stock *** INDUSTRY FOCUS ***

TL;DR

Macy's has recently seen a decline in sales and profitability, causing its stock price to drop and dividend yield to rise. However, the company is taking steps to improve its business, including cost cuts, exploring new growth avenues, and selling off real estate. This could potentially lead to future dividend growth.

Transcript

Sean O’Reilly: We’re going shopping for consumer goods dividends… on this CG edition of Industry Focus. Greetings Fools, I am Sean O’Reilly here in studio at Fool headquarters in Alexandria Virginia. It is Tuesday, November 17th and this week is dividend week on Industry Focus. Vincent Shen is out today and filling in for him and joining us on the ... Read More

Key Insights

• 💦 Macy's stock price has dropped due to poor Q3 earnings and overall sales declines in the retail sector.
• 🥺 The decline in stock price has led to a higher dividend yield, making Macy's an attractive dividend stock.
• 👶 Macy's is implementing a multi-pronged strategy to improve its business, including exploring new growth avenues, cutting costs, and selling off underperforming stores and real estate.
• 🥳 The company's dividend payout ratio is modest, and they have enough cash flow to cover dividends and planned capital expenditures.
• 💇 By improving profitability through cost cuts and real estate sales, Macy's has potential for future dividend growth.
• 🍉 However, the decline in sales and profitability remains a concern for Macy's and may impact the sustainability of its dividend in the long term.
• 👨‍💼 Investors should carefully monitor Macy's progress in turning around its business and evaluate the success of its growth strategies before making investment decisions.

Questions & Answers

Q: Why did Macy's stock price drop so significantly?

Macy's stock price dropped due to poor Q3 earnings and overall sales declines in the retail sector, which were worse than expected.

Q: What is Macy's strategy to improve its business?

Macy's strategy includes exploring new growth avenues such as acquiring the Bluemercury chain, testing out an off-price concept called Macy's Backstage, and investing in e-commerce in China. They are also cutting costs, closing underperforming stores, and selling off real estate.

Q: Is Macy's dividend sustainable?

Macy's dividend payout ratio is currently modest, and the company has enough cash flow to cover its dividends and planned capital expenditures. Additionally, Macy's is likely to bring in cash from selling off real estate, which could further support future dividend growth.

Q: What are the potential risks for Macy's?

The decline in sales and profitability remains a concern for Macy's. If the company does not turn around its business and continue to generate profits, it may have to cut its dividend in the future.

Summary & Key Takeaways

• Macy's stock has seen a significant decline, with a drop of almost 50% since mid-July due to poor Q3 earnings and overall sales declines in the retail sector.

• Despite the decline, Macy's still offers an attractive dividend yield of 3.7%, which is higher than government bonds.

• Macy's is implementing a multi-pronged strategy to improve its business, including exploring new growth avenues, cutting costs, and selling off underperforming stores and real estate.