Ross Stores stock (Nasdaq: ROST) is down 20% in the last two weeks. Is this a normal correction or a sign of more serious problem? Let’s take a look at the Ross Stores dividend safety and some other business highlights.
Ross Stores Stock: Business Overview
Ross Stores is a $32 billion business that’s based out of California. The company employs 82,700 people and pulled in $14 billion in sales last year. That breaks down to $171,000 per employee.
Ross Stores is a home fashion retailer with over 1,300 locations in 36 states. The clothing retail industry is a competitive space and Ross Stores management has projected weak same-store sales for the 4thquarter. However, Ross Stores holds a solid credit rating (A-) from the S&P. This allows Ross Stores to issue cheap debt to expand the business and finance other initiatives.
Ross Stores Dividend History 10 Years
Ross Stores paid investors $0.0988 per share a decade ago. Over the last decade, Ross Stores’s dividend has climbed to $0.64. That’s a 548% increase…
The compound annual growth is 20.5% over 10 years… but over the last year, the dividend climbed 18.5%. The slowdown in dividend growth isn’t a great sign but the growth is still impressive. Ross Stores might be a good income investment so let’s check out the yield…
Ross Stores Current Dividend Yield vs. 10-Year Average
Ross Stores’s dividend history is long, and this makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Ross Stores’s dividend safety is also important, so we’ll look at the soon.
The dividend yield comes in at 1.04%, which is below the 10-year average of 1.07%. The chart below shows the dividend yield over the last 10 years.
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean-reverting with share price changes.
Improved Ross Stores Dividend Safety Check
Many investors look at payout ratio to determine dividend safety. To do this, they look at the dividend per share divided by the net income per share. So a payout ratio of 60% would mean that for every $1 Ross Stores earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety… but accountants alter net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s Ross Stores’s payout ratio based on free cash flow over the last 10 years.
The ratio is volatile over the last 10 years and the trend is up. The last reported year shows a payout ratio of 18.6%. This gives lots of room for Ross Stores’s board of directors to raise the dividend.
Ross Stores looks like a good investment, but the dividend yield is too low for my liking. There are dividend stocks with higher yields. You might want to shop for better dividend stocks in the current market.
If you’re interested in seeing more dividend research, please comment below. You can also check out our free dividend reinvestment calculator.
Good investing,
Robert
