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Staples, Inc. (SPLS), Advance Auto Parts, Inc. (AAP): Buy These Names Before They Increase Their Dividends

An under-performer worth a look

PetSmart, Inc. (NASDAQ:PETM), perhaps, has had the least capital appreciation among the four companies expected raise their dividends. However, the reason for that has been the attention this space gets from Amazon.com, Inc. (NASDAQ:AMZN). While one shouldn’t discount a threat from a company whose ROI is evaluated more leniently by the Street, investors underestimate the importance of PetSmart, Inc. (NASDAQ:PETM) and the other specialty pet superstores to suppliers.

It makes little sense for those suppliers to undermine their own pricing and support structure for market share. Iams tried this 13 years ago when it expanded its distribution to mass channels, and that brand lost its cachet and has never recovered. Hence, while the Internet will remain a threat, this might not be a reason to ignore one of the best-positioned and highest-quality growth stories in the space.

Final word

With the 10- year Treasury yield at 2.3%, dividends represent an increasingly attractive way to generate investment return. Along with this, the retailers have got the example of Williams-Sonoma’s rally after a dividend hike. There are a number of retailers that have the capacity to significantly increase their dividend payments, which provides an additional catalyst to own these names. Bed, Bath & Beyond, Staples, Inc. (NASDAQ:SPLS), Advance Auto Parts, Inc. (NYSE:AAP) and PetSmart are the top four choices.

Zain Abbas has no position in any stocks mentioned. The Motley Fool recommends PetSmart. The Motley Fool owns shares of Staples. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Buy These Names Before They Increase Their Dividends originally appeared on Fool.com and is written by Zain Abbas.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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