Real Estate Sector Ideas

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>>> These dividend stocks are down a lot, but there’s plenty of cash flow to raise payouts


By Philip van Doorn

June 23, 2017



http://www.marketwatch.com/story/these-dividend-stocks-are-down-a-lot-but-theres-plenty-of-cash-flow-to-raise-payouts-2017-06-21?siteid=bigcharts&dist=bigcharts



Here are some possible bargains for income-seeking investors willing to consider contrarian plays

Shares of Kohl’s are down 27% this year, but the stock has a dividend yield above 6% and plenty of excess free cash flow to support a higher payout.


The S&P 500 index is up 9% so far in 2017, but there are losers in any market. And that’s where you might find long-term bargains, along with the expected batch of companies facing painful secular declines.

Two groups of companies that are particularly out of favor are brick-and-mortar retailers and real estate investment trusts that own malls or shopping centers. The reason for these groups’ pain is obvious: Amazon.com Inc. AMZN, +0.24% continues to dominate the rapidly growing online retail industry and grab business from traditional retailers.

But some of these plays still have attractive dividend yields and plenty of free cash flow to support higher payouts. A company’s free cash flow is its remaining cash flow after planned capital expenditures. We can calculate a “free cash flow yield” by looking at the last 12 months’ free cash flow per share and dividing it by the current share price. If the free cash flow yield exceeds the dividend yield, a company has “headroom” to raise dividends, or buy back stock, or make acquisitions or other expansions of their businesses, all of which can boost stock prices over the long term.

For REITs, we used funds from operations (FFO) instead of free cash flow, because FFO is generally considered the best way to measure a REIT’s ability to pay dividends. FFO adds depreciation and amortization back to earnings, while subtracting gains from the sale of assets.

Among the S&P 500 SPX, +0.16% 76 stocks were down at least 10% this year through June 20. Among these 76, a dozen have dividend yields above 3.5% and free cash flow headroom.


Here’s the list, sorted by dividend yield:

Company Ticker Industry Dividend yield Free cash flow yield - past 12 reported months ‘Headroom’ Price change - 2017 through June 20


Macy’s Inc. M, +0.81% Department Stores 6.83% 21.63% 14.80% -38%

Kimco Realty Corp. KIM, +0.78% Real Estate Investment Trusts 6.14% 7.44% 1.31% -30%

Kohl’s Corp. KSS, +2.01% Department Stores 6.11% 20.24% 14.13% -27%

Oneok Inc. OKE, +2.93% Oil and Gas Pipellines 5.18% 8.85% 3.67% -17%

Macerich Co. MAC, +0.51% Real Estate Investment Trusts 4.93% 7.12% 2.19% -19%

Target Corp. TGT, +0.26% Discount Stores 4.87% 16.78% 11.91% -30%

L Brands Inc. LB, +1.15% Apparel/ Footwear Retail 4.58% 6.95% 2.37% -20%

Simon Property Group Inc. SPG, -0.14% Real Estate Investment Trusts 4.28% 6.67% 2.39% -11%

Qualcomm Inc. QCOM, +0.78% Telecom. Equipment 4.01% 6.60% 2.59% -13%

People’s United Financial Corp. PBCT, +0.06% Savings Banks 3.95% 6.05% 2.10% -10%

Western Union Co. WU, +2.08% Data Processing Services 3.69% 9.32% 5.62% -13%

Regency Centers Corp. REG, +1.31% Real Estate Investment Trusts 3.55% 5.66% 2.11% -13%



Source: FactSet


All four REITs on the list own shopping centers and/or malls.

You can click on the tickers for additional information, including news, price-to-earnings ratios, estimates and ratings.

As with any “first screen” of stocks, the list is meant to spur further discussion as you consider whether any of these companies might be worth considering as an investment, especially if you crave dividend income.

It’s obvious that many of these companies are out of favor, as they face major challenges to their business models. But that doesn’t mean none will survive or even thrive over the long term.

If you see any names of interest here, your next step, as always, should be to do your own research, preferably with the assistance of your broker or investment adviser, to form your own opinions about the companies’ long-term prospects.

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