In this article, we will take a detailed look at the 11 Best Retail Dividend Stocks to Buy.
Investors are slowly beginning to give up on hopes of seeing any rate cuts this year, as inflation remains stick and jobs data strong. Consumer and retail stocks are highly sensitive to interest rates as state of the consumer defines the trajectory of profits of retail companies. In the last quarter of 2023 through early 2024, retail stocks were rising as investors were confident that the Fed would begin cutting rates. The SPDR S&P Retail ETF gained over 30% since October through the end of March. But amid declining market sentiment, the ETF is down 4.5 over the past one month. Earlier this month, a Bloomberg report said, citing brokerage data from Goldman Sachs Group Inc., that hedge funds were growing bearish on US stocks, especially consumer companies, as data shows they were cutting long positions and shorting retail ETFs.
“Resilience of Consumption”
But for long-term investors, consumer and retail stocks remain attractive choices. Latest data from the Commerce Department shows consumer spending still remains strong, driven by services, healthcare and insurance. A Wall Street Journal report cited Eugenio Alemán, chief economist at the investment firm Raymond James, who said that US domestic economy is still “doing well.” Data for March shows retail sales jumped 0.7% during the month, much more than the estimated 0.3% rise.
A strong jobs market and years of savings are giving consumers enough leeway to keep spending despite rising interest rates. According to Andrew Hunter, deputy chief US economist at Capital Economics, this “resilience of consumption” would translate into the Fed not cutting interest rates until at least September this year, according to a Bloomberg report.
Long-Term Outlook of Retail Industry
Whether or not the Fed begins to cut rates, long-term investors focused on retail stocks are paying attention to secular growth catalysts for the industry. Amid income growth, changing consumer trends, rise of ecommerce and new shopping categories, retail stocks and the consumer industry in general is set to thrive. Holiday sales in 2023 jumped 3.8% to reach a record $964.4 billion. The Black Friday weekend retail store traffic also jumped 1.5% from the previous year. The National Retail Federation expects retail sales in the US to grow anywhere between 2.5% and 3.5% YoY to reach $5.23 trillion and $5.28 trillion this year.
The retail industry is benefitting from the simultaneous rise of ecommerce and brick-and-mortar shopping experience. A 2024 outlook report published by Cart.com entitled State of the Retail Consumer cited a survey in which 42% of the total respondents said that they planned to spend more online in the next 12 months. Ecommerce revenue around the world was expected to grow at a CAGR of 9.8% between 2024 through 2028 to reach $3.65 trillion. The report cited National Retail Federation, which has said in a report that AI is causing retail companies to make decisions faster as the technology is “blowing the lid off constraints” for business.
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How Does AI Help Retail Companies?
Major retailers are starting to talk about how AI is helping them increase productivity and cut costs. For example, Target in its March earnings call said:
“We’re using generative AI to power our product detail pages to provide more friendly and relevant explanations of what guests wanna know about our assortment.
AI also powers features like Shop the Look and our Get It Now assistant, which lets you know when items in your cart are available for pickup at a nearby store. It’s also the engine behind the insights we use to give guests more personal experiences and rewards through our loyalty program, Target Circle. And it’s a key element of how we create thoughtfully curated campaigns for consumers through our advertising business, Roundel. This might be a good time to talk about how Roundel seamlessly integrates into the guest experience and continues to drive more than $1.5 billion in value for our business. Growing more than 20% in 2023, Roundel is the powerful bridge between our guests and the brands they love. Roundel works with more than 2600 vendors to deliver creative that is resonant and wholly consistent with the Target experience.”
Walmart’s CEO Doug McMillan also talked about how generative AI was helping the company during Q4’2023 earnings call:
“The way generative AI helped us really improve a solution-oriented search experience for customers and members is the thing that we’re most excited about and it happened pretty quickly and it impacted Super Bowl search results. We gave you an example of Valentine’s Day earlier and the team is learning how to do that across all of our markets and the entirety of the company. So that’s also exciting. We also rolled out something we call My Assistant on our Me@Walmart applications so that all of our associates have access to generative AI tools and capabilities.
So strategically, the way I think about it is, the leadership of the companies working through where our biggest opportunities are, prioritizing and resourcing those opportunities. But we’re also making generative AI available broadly so that we get surprising good news from the way that all of our associates interact with it.”
Read the full earnings call transcript here.
Photo by Dan Dennis on Unsplash
Methodology
For this article we scanned Insider Monkey’s database of 933 hedge funds and picked 11 retail stocks that pay dividends with the highest number of hedge fund investors. We preferred retail companies with strong dividend growth history and fundamentals. Why do we pay attention to hedge fund sentiment? Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
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11. Best Buy Co. Inc (NYSE:BBY)
Number of Hedge Fund Investors: 32
Best Buy Co. Inc (NYSE:BBY) announced an increase in its dividend in March, cementing its position as a solid dividend growth stock. Best Buy Co. Inc has increased its dividend payout at a rate of about 20% since 2014. The stock’s dividend yield of 5% is also above the industry average.
Of the 933 funds tracked by Insider Monkey, Cliff Asness’s AQR Capital Management had the most significant stake in Best Buy Co. Inc, valued at $86 million.
Mairs & Power Growth Fund stated the following regarding Best Buy Co., Inc. in its fourth quarter 2023 investor letter:
“We added two smaller positions to the portfolio in the fourth quarter as well—Piper Sandler (PIPR) and Best Buy Co., Inc.–both of which are Minnesota-based. We also initiated a position in Best Buy, a leading electronics retailer with more than 1,000 stores nationwide. We’ve been impressed with management’s ability to navigate a difficult retail landscape, gaining share amongst its offline competitors. The consumer electronics market is suffering from a spending hangover after the Pandemic, but we are starting to see green shoots of a recovery; in the meantime, Best Buy offers a 5% dividend.”
10. Dick’s Sporting Goods Inc (NYSE:DKS)
Number of Hedge Fund Investors: 32
Dick’s Sporting Goods Inc shares jumped last month after Dick’s Sporting Goods Inc increased its dividend by 10% and also announced better-than-expected Q4 results.
9. Dollar General Corporation (NYSE:DG)
Number of Hedge Fund Investors: 47
Dollar General Corporation (NYSE:DG) shares are in the spotlight after the company posted strong Q4 results last month. Dollar General Corporation saw an increase in traffic at its stores. Analysts also believe the bankruptcy of 99 Cents Only Stores would help Dollar General Corporation in the long term.
As of the end of the fourth quarter of 2023, 47 hedge funds out of the 933 funds tracked by Insider Monkey had stakes in Dollar General Corporation.
Artisan Value Fund stated the following regarding Dollar General Corporation in its fourth quarter 2023 investor letter:
“Our biggest full-year detractors included energy holdings Schlumberger and EOG and 2023 purchases Baxter International and Dollar General Corporation (NYSE:DG). Dollar General, a discount retail chain in the US, has dealt with a few struggles. The retailer had previously benefited from COVID stimulus checks, reflected in the bump it experienced in revenues and margins. However, the effects have worn off, and its core consumer has been hurt by inflation, stiffer economic conditions, lower tax refunds and reduced SNAP benefits. Margins are also under pressure due to labor costs, shrink and markdowns. Some of the issues are likely self-inflicted. After years of focusing on store growth to drive the top line, store standards have suffered. Addressing store standards is needed to turn around flagging traffic, comps and customer satisfaction. On the positive side, discount retail due to its trade-down feature tends to be a defensive business during economic slowdowns. Dollar General has a strong market position and faces less competition than other discounters due to its largely rural footprint. The business’s value proposition is everyday low prices, a convenient format and proximity. The company has leverage due to capital expenditures, but interest coverage of ~9X is strong. From a valuation perspective, the froth from the pandemic, when it traded in the low- to mid-twenties, is gone. So, we aren’t paying for margin upside or store growth. Those would be bonuses. If the company can continue to grow revenues, generate cash flow and buy back stock, we still see a path to success.”
8. Kroger Co (NYSE:KR)
Number of Hedge Fund Investors: 45
Supermarkets company Kroger Co (NYSE:KR) is one of the best retail dividend stocks to buy according to hedge funds. With an over 2% dividend yield and about more than 15 years of consistent dividend increases under its belt, Kroger Co remains a coveted dividend stock as well as a consumer defensive play.
As of the end of the fourth quarter of 2023, 45 hedge funds tracked by Insider Monkey had stakes in Kroger Co.
In its fourth quarter 2023 investor letter, Oakmark Global Fund stated the following regarding The Kroger Co.:
“The Kroger Co. (NYSE:KR) (U.S.) is the second-largest grocery retailer in America, behind only Walmart. Although the grocery industry is highly competitive, Kroger’s scale advantages allow it to offer a more compelling value proposition than smaller peers and earn higher returns on capital. In recent years, the market has assigned Kroger a lower multiple due to concerns that e-commerce would disrupt traditional brick-and-mortar grocery businesses. However, we believe Kroger’s performance through the pandemic highlighted that its store footprint, distribution infrastructure, technology investments and strong brand all position the company well for a world with higher online grocery adoption. The stock trades for just 10x our estimate of next year’s EPS, which we believe is attractive given Kroger’s competitive positioning and earnings growth outlook. The pending merger with Albertsons could accelerate the company’s earnings growth and produce additional scale advantages. If the merger is not approved, the company will have the capacity to return over 25% of its market cap to shareholders.”
7. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Investors: 57
Earlier this month, Costco Wholesale Corporation (NASDAQ:COST) increased its dividend by 13.7%. The new dividend is payable May 10 to the shareholders of record as of April 26. Costco Wholesale Corporation has about two decades of dividend growth under its belt and it’s also known for giving pleasant surprises to investors with special dividends. It paid a special dividend in 2020 and also a hefty $15 per share special dividend last year.
Madison Sustainable Equity Fund stated the following regarding Costco Wholesale Corporation in its fourth quarter 2023 investor letter:
“Costco Wholesale Corporation (NASDAQ:COST) reported solid holiday results and announced a special dividend of $15 per share. Earnings were better than expected driven by better gross margin. Same store sales were 3.9% with solid traffic. Costco also noted better discretionary trends and solid seasonal sales.”
6. Target Corporation (NYSE:TGT)
Number of Hedge Fund Investors: 58
With more than 50 years of consistent dividend hikes and a strong retail business, Target Corporation (NYSE:TGT) easily takes one of the top spots in our list of the best retail dividend stocks to buy according to hedge funds. Of the 58 hedge funds that reported having stakes in Target Corporation as of the end of 2023, Ric Dillon’s Diamond Hill Capital reported a $401 million stake in Target Corporation.
Diamond Hill Large Cap Strategy stated the following regarding Target Corporation in its fourth quarter 2023 investor letter:
Other top contributors in Q4 included Allstate, American International Group (AIG) and Target Corporation (NYSE:TGT). US-based mass retailer Target is capitalizing on cleaner inventory, lower freight costs and improved efficiency to improve profitability — and investors rewarded shares accordingly in Q4.
5. TJX Companies Inc (NYSE:TJX)
Number of Hedge Fund Investors: 62
Off-price retailer TJX Companies Inc (NYSE:TJX) ranks fifth in our list of the best retail dividend stocks to invest in according to hedge funds. Earlier this month TJX Companies Inc increased its dividend by 13%. This was the 27th year of dividend growth for TJX Companies Inc.
Insider Monkey’s database of 933 hedge funds shows that 62 hedge funds had stakes in TJX Companies Inc as of the end of 2023.
Madison Investments U.S. Equity Strategy stated the following regarding The TJX Companies, Inc. in its fourth quarter 2023 investor letter:
“Whether it’s performance by market capitalization, sectors, or any other factor, stock markets are intrinsically cyclical. Some cycles are long-term, taking decades to unfold, and some are short-term, lasting months, weeks, or even days. Many are medium in length, lasting two, three, or several years. Most cycles occur because a trend often creates the seeds of its own reversal. We at Madison Investments are certain that market cycles will occur, but it doesn’t mean we can predict their timing or magnitude. We don’t think we can. This is perhaps a major difference between us and many other investors. Most investors believe it’s their job to time market cycles despite overwhelming evidence that it’s nearly impossible to do so with enough accuracy to make such an effort profitable over long periods. We avoid making calls about market cycles and spend zero minutes thinking about them, not because we don’t think they can be important, but because we think they’re inherently unpredictable in duration.
This mentality of our team is generally true for other kinds of cycles, such as macroeconomic, industry, or company-specific, but is a bit more nuanced for those. We make no explicit prediction about cycles on which we base a buy or sell decision. Still, we are acutely aware of the various cyclical forces at work, and depending on whether we think we have the ability to assess the length or intensity of such, we may incorporate them to various degrees.
Let’s use a few examples to illustrate our point. We’ve been invested in off-price retailer The TJX Companies, Inc. (NYSE:TJX) for just under ten years, having invested in 2014 in our Large Cap strategy. TJX is one of the most recession-resistant companies we own due to its perennial value proposition to customers; customers always like to save money, especially when economic times get tough. As a result, the company has had an exceedingly steady revenue and earning profile over the past several decades…” (Click here to read the full text)
4. CVS Health Corporation (NYSE:CVS)
Number of Hedge Fund Investors: 67
CVS Health Corporation (NYSE:CVS) is one of the top dividend growth stocks liked by hedge funds. Earlier this year CVS Health Corporation announced yet another dividend increase. Over the past 10 years CVS Health Corporation’s (NYSE:CVS) dividend has seen a compound annual growth rate (CAGR) of approximately 10% per year.
CVS Health Corporation is also highly popular among hedge funds. Insider Monkey’s database shows that 67 hedge funds had stakes in CVS Health Corporationas of the end of 2023. The biggest stake in CVS Health Corporation is owned by Bernard Horn’s Polaris Capital Management which owns a $37 million stake in CVS Health Corporation.
In its fourth quarter 2023 investor letter, Vltava Fund stated the following regarding CVS Health Corporation:
“Not every transaction creates value. Some transactions destroy company value. An example of such transaction is CVS Health Corporation (NYSE:CVS)’s acquisition of Oak Street Health in early 2023. This acquisition cost CVS $10.6 billion, and, based on metrics cited by the company itself, it seems to us that it was a waste of money for the most part. Unfortunately, CVS has its own history of overpriced acquisitions. The last one prior to that was in 2018, when CVS bought health insurer Aetna for $69 billion. We had assumed that CVS management, which has since changed, would recognise that mistake and learn from it. We were wrong. The acquisition of Oak Street Health is both disappointing and a warning to us. We now have a company in our portfolio whose capital allocation we consider to be poor and that should not be there. Unfortunately, the situation is complicated by the fact that the CVS stock is now very cheap and therefore we are reluctant to dispose of it just yet. We probably will do so, however, when the opportunity arises.”
3. Lowe’s Companies Inc (NYSE:LOW)
Number of Hedge Fund Investors: 68
With about 60 years of consistent dividend increases, Lowe’s Companies Inc is a dividend king in the retail sector.
Insider Monkey’s database of hedge funds shows that smart money investors like this dividend stock, as 68 hedge funds reported having stakes in Lowe’s Companies Inc as of the end of 2023. The biggest stakeholder of Lowe’s Companies Inc during this period was Eric W. Mandelblatt’s Soroban Capital Partners which owns a $451 million stake in Lowe’s Companies Inc.
Aristotle Capital’s Value Equity Strategy stated the following regarding Lowe’s Companies, Inc. in its first quarter 2024 investor letter:
“During the quarter, we sold our positions in Phillips 66 and Sysco and invested in two new positions: Lowe’s Companies, Inc. (NYSE:LOW) and TotalEnergies.
Based in North Carolina, and with a history dating back to 1921, Lowe’s Companies is the world’s second-largest home improvement retailer (after Home Depot). The company operates more than 1,700 stores in the United States that offer a wide variety of products to enhance a home, from plants for the garden and house décor to hardware and appliances. Often located in suburban areas, Lowe’s stores primarily serve retail “do-it-yourself” customers (~75% of revenue) and sell products that are used for home maintenance and repair (over 60% of revenue). This contrasts with Home Depot, whose stores have a higher presence in metropolitan areas and cater more to professional customers.
We had previously been investors in Home Depot. Over much of the past decade Home Depot had, in our opinion, executed better than Lowe’s—expanding its presence with large professional customers and increasing its store productivity. However, with Lowe’s hiring of former Home Depot executive Marvin Ellison in 2018, we believe Lowe’s has started the process of closing the gap to better compete with its nearest rival…” (Click here to read the full text)
2. Home Depot Inc (NYSE:HD)
Number of Hedge Fund Investors: 70
Home improvement retailer Home Depot Inc (NYSE:HD) earlier this year announced a 7.7% increase to its quarterly dividend. It is one of the best dividend stocks to buy according to hedge funds as 70 hedge funds tracked by Insider Monkey had stakes in Home Depot Inc as of the end of 2023.
ClearBridge Sustainability Leaders Strategy made the following comment about The Home Depot, Inc. in its Q3 2023 investor letter:
“The Home Depot, Inc. (NYSE:HD) has long been a leader in advancing sustainable forestry, and its wood products can have a significant impact, as timber rates at the top of high-risk commodities responsible for most agriculture-related deforestation (Exhibit 3). The home improvement retailer adopted its first wood purchasing policy in 1999, pledging to give preference to sustainably sourced wood and to eliminate wood purchases from endangered regions around the world.
Biodiversity-boosting efforts at Home Depot have included tracing the origin of all the wood products it sells. This forms part of the process of verifying sustainable production, which it does using the certification standards of the Forest Stewardship Council (FSC). Since 2000 Home Depot has developed programs to purchase FSC wood products, such as doors, boards and patio furniture, from over 60 global suppliers. It has also moved more than 90% of its cedar purchases to second-and third-growth forests, with the rest coming from areas with local community stakeholder review.”
1. Walmart Inc (NYSE:WMT)
Number of Hedge Fund Investors: 85
Walmart Inc (NYSE:WMT) earlier this year announced a 9% hike in its annual dividend. This was the 51st consecutive annual dividend increase, cementing Walmart Inc’s (NYSE:WMT) status as one of the best and reliable dividend stocks to invest in.
Of the 933 hedge funds in Insider Monkey’s database, 85 hedge funds had stakes in Walmart Inc.
Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below. You can also look at the 10 Best Consumer Discretionary Dividend Stocks To Buy According to Analysts and the 12 Best Growth Stocks to Buy and Hold in 2024.
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Disclosure. None. 11 Best Retail Dividend Stocks to Buy was initially published on Insider Monkey.
