Is Kohl’s a Buy for its 5.7% Dividend?

Kohl’s Corporation (NYSE:KSS) has fallen more than 30% in the past year. Things went really off the rails in May when the company reported its first-quarter earnings of 2019.

With both profits and sales down from the prior-year quarter, investors were not impressed and even the company’s CEO Michelle Gass noted that“The year has started off slower than we’d like.”

Kohl’s hasn’t recovered since then but with its dividend payments remaining intact, the drop in price has had a positive impact on its dividend yield, which is now up to 5.7%.

Kohl’s has increased its dividend payments over the years but that may be in jeopardy if it fails to produce strong results. The company has generated a profit of just $698 million over the past 12 months on revenue of $20 billion, which amounts to a modest 3.5% profit margin.

The good news for dividend investors, however, is that with free cash flow totaling $931 million during that time, it’s been more than enough to cover dividend payments of $418 million.

As long as Kohl’s can continue generating strong free cash flow, it should be in good shape to continue paying and potentially even increasing its dividend payments.

However, there’s still going to be some risk here because if Kohl’s starts to struggle generating cash or not enough as it would like, cutting a dividend may be the easiest way to add some cash flow.

And with Kohl’s not having a particularly long history when it comes to paying dividends, going back to just 2011, it may be easier to justify cutting the dividend than it would be for a company with a much longer track record.