Discount retail stocks have been struggling of late as concerns about inflation and rising prices weigh on their businesses. Shares of Big Lots (NYSE:BIG) are down 25% in the past three months while the S&P 500 has risen by 8%.
The company is coming off a quarter that went up against a tough pandemic-fueled period from a year ago. Sales of $1.46 billion for the period ending July 31 were down 11% compared to last year. But when compared to 2019, they grew by more than 16%.
CEO Bruce Thorn acknowledged that "supply chain headwinds will continue into Fall and Holiday." With that conservative outlook priced into the stock, that could make new an attractive time to buy this dividend stock because even if subsequent quarters aren't all that strong – expectations won't be high, either.
The stock is now trading around the levels it was at when 2021 began. It's also at a Relative Strength Index of less than 30, suggesting that the recent sell-off has been excessive. For income investors, the benefit of buying today is that you can secure a better-than-usual yield due to the declining share price. At around $48, Big Lots is now yielding 2.5%, which is well above the S&P 500 average of approximately 1.3%.
While there will be short-term headwinds for Big Lots, the discount retailer could become a hotter buy over the long term as things get back to normal. With a forward price-to-earnings multiple of just eight, Big Lots isn't an expensive stock to buy for dividend investors to add to their portfolios today.
