With the holiday season over and 2011 upon us, investors must yet again look forward and not backward when analyzing their investment options. One sector that always is at the forefront in December is retail, with shoppers flocking to the malls and shopping online at an ever-growing rate to find gifts for their friends and family. 2010 was a good year for the sector, as exemplified by the S&P Retail SPDR (NYSE:XRT), which was up 35% over last year. The holiday spending was also very strong; especially online, with Americans spending an estimated $30 billion online, a 13% increase over 2009. While some may argue that now may not be the best time to jump into the sector (after all, January and February are traditionally terrible months for retail), there still may be some upside here. But for investors looking for more incentive, here are three retail stocks that offer potential investors the protection of dividends.
IN PICTURES: World's Greatest Investors
American Eagle Could Be A Good Ride
Casual teen/young adult retailer American Eagle (NYSE:AEO) has not been one of the better-performing stocks in the past month or so, down about 12% in December. Some of this could be attributed to the fact that in early December, the company announced disappointing November sales figures. Although November sales grew 2% year over year, comps were flat, while analysts had been expecting a 1.5% increase from those same-store sales. This disappointing announcement may have sent investors looking for other options in the teen retail space, such as Abercrombie & Fitch (NYSE:ANF) and Aeropostale (NYSE:ARO), both of which were up over 3% in December. This December drop could provide a strong buying opportunity for investors betting that American Eagle was able to hold its own during this busy holiday season. Trading at under $15, its cheapest price since September, and yielding 3.1%, American Eagle could be a solid play early in 2011.
The Buckle Could Also Provide Upside
Next we have trendy brand name retailer The Buckle (NYSE:BKE), which also was a bit of a laggard in retail in December, trading relatively flat for the period. This wasn't the case for the past three months of 2010, however, with The Buckle returning 45% since the beginning of October, on the back of very strong Q3 results in late November. The company beat Street estimates on both the top and bottom lines, increasing revenues and earnings by 4.2% and 5.2%, respectively. Additionally, online sales for the quarter increased a whopping 21%, a great sign as more and more customers are finding their online store and spending their money there. Having previously mentioned that overall holiday online sales increased 13% in 2010, it's a good bet that The Buckle will see strong sales from the ecommerce segment in Q4. Its 14 P/E ratio is also very reasonable, especially when compared to competitors like Abercrombie and Urban Outfitters (Nasdaq:URBN). Along with its 2.1% dividend yield, The Buckle is another retailer that could provide some upside for investors in the retail sector this year.
Looking Ahead At The Finish Line
Lastly we look at sporting apparel retailer The Finish Line (Nasdaq:FINL), which like American Eagle had a rough December, trading down 5%, much of that due to a less-than-stellar Q3. Much like the quarter prior, Finish Line announced disappointing numbers, with profits dropping over 35% year over year, but revenues increased 8%. Additionally, much like The Buckle, the company saw online sales increase 25% for the quarter, and same-store sales also jumped 10%. While The Finish Line has struggled to increase the bottom line, it has increased sales nicely and is making a big push in its ecommerce business, which should translate to higher margins and better returns for the coming year. Although the 1% dividend is nothing to get too excited about, it still may be enough for investors to take a shot with this athletic retailer.
The Bottom Line
All of the aforementioned stocks offer investors some upside potential due to a less-than-stellar finish to 2010; and by offering investors a dividend for their trouble, they offer a bit of a cushion to the downside as well.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!