Is TJX Dividend Worth Buying?

TJX Companies (NYSE:TJX) is the parent company of a range of brick-and-mortar retailers that includes T.J. Maxx, Marshall’s and HomeGoods.

The company, long a bastion of physical clothing and homewares retail, is rapidly raising its dividends to return cash to its shareholders so is TJX worth buying for its dividend? And how much further can the stock run?

How Much Does TJX Pay?

At first glance, TJX may not look like an incredible dividend stock. Shares in the company yield 1.36%, paying $1.33 annually. This is almost identical to the S&P 500 average of 1.38%, making TJX far from a high-yield stock.

TJX also lacks the proven staying power of the S&P’s dividend aristocrats and kings. The Board of Directors has only been raising the dividend for four years.

The real story around TJX’s dividend, though, is its rapid growth rate. Over the last three years, the payout has grown at a compounded annual rate of over 75%. Even with this surge in distributions, TJX’s payout ratio is still under 35%, suggesting that management still has plenty of space left for further increases.

The company also still seems inclined to keep pushing the distribution higher. In April, management announced a 13% increase to $0.375 per quarter. Given these factors, TJX has the potential to stand out as a dividend growth opportunity.

Can TJX Sustain Its Dividend Growth?

Even with its low payout ratio, TJX will need earnings growth to persist to sustain such high dividend yield hikes.

Fortunately for investors, the company looks to be in a good position to achieve just that. Earnings per share growth is expected to average about 10.4% over the coming five years.

Another encouraging sign for investors is the fact that TJX has been able to increase its cash position while paying its current dividend.

The company significantly drew down its cash holdings in 2021 and 2022. In each of the last four quarters, though, cash on hand has increased. Today, the company holds $5.6 billion of cash.

Revenue and earnings growth is also continuing at a healthy pace, suggesting that the company isn’t losing momentum. For the full year of 2023, sales increased by 9% while diluted earnings per share rose 37%.

Though the rate of earnings growth is expected to slow from this very high level, these figures still demonstrate that the company is performing well.

It’s also worth noting that TJX has managed to maintain a steady pace of revenue growth in what has been a challenging market environment. Revenues have risen year-over-year in all but 2 of the last 12 quarters, and neither of the two negative quarters saw sales drop by more than 3%.

Although TJX’s revenues aren’t skyrocketing, they have been advancing at a steady and sustainable pace that has contributed to earnings growth and helped to facilitate the rapid dividend hikes of the past few years.

Is TJX Fairly Valued?

Though the company’s dividend looks promising, investors still need to get the right price for TJX stock. The stock currently trades at 23.8x forward expected earnings and 20.3x cash flow, initially suggesting that it’s neither substantially overvalued nor undervalued.

At just 2.0x sales, though, the price of TJX looks reasonably attractive. Given the fairly high rate of earnings growth expected over the next several years, it’s possible that the stock is trading a bit below its fair value.

This view is upheld by the current slate of analyst ratings on TJX which report a median price target of $113.50 per sare, a solid 16.5% above the last price of $97.45.

If this projection proves accurate, investors are likely to see very strong appreciation on top of a respectable dividend, resulting in excellent total returns.

What Are the Downsides?

For all of its advantages, TJX also comes with some pitfalls. The most important of these is a fundamental shift away from brick-and-mortar retail.

In light of its revenue growth, it’s obvious that TJX has been fairly successful in bucking this trend so far but the ongoing rise of online clothing retail could be a problem for the company going forward.

Specifically, industry experts cite the growth of discount online clothing brands like Shein and Temu as obstacles to TJX’s growth.

Though TJX does have an eCommerce presence, it’s ill-equipped to compete with brands like these that have poured most of their resources into building online platforms and marketing on social media. TJX is not trying to update its business model, potentially leaving it at the mercy of a changing industry.

Is TJX Dividend Worth Buying?

TJX dividend appears to be worth buying because of how fast it has grown in recent years and the potential to sustain that over the next 5 years.

Investors probably won’t see the kind of increases the last three years have brought, but there are lots of reasons to believe that management can and will keep raising the payout going forward.

Even without the fast-rising dividend, TJX’s performance is impressively solid. The company averaged an 8.3% net margin over the last 12 months, and comparable store sales rose by 5% on higher foot traffic to stores.

The second point is particularly interesting, as it shows that shoppers aren’t shying away from the company’s stores in favor of online options when hunting for bargain clothing prices.

Taking everything into account, TJX looks to be a moderate buy with the potential to deliver outsized dividend growth.

Investors may want to keep their stakes in the company small to limit the potential downside of long-term industry trends that could work against TJX.

For the moment, though, TJX is performing well and using its strong cash flows to give investors a reliable source of dividend income.

Barring changes to the company’s performance, it appears that investors who buy TJX will likely see decent returns for the foreseeable future as share prices rise and payouts continue to increase.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.