The primary goal of a dividend investor is to pick stocks that will consistently raise their dividend and help to increase purchasing power over time.
The March 2022 consumer price index reading of 8.5% is the highest inflation rate in four decades. But even with accelerating inflation, there are still stocks raising their dividend in excess of inflation. TJX Companies (TJX -1.52%) -- the off-price retailer and owner of store brands like T.J. Maxx and HomeGoods -- announced a 13.5% hike in its quarterly dividend per share to $0.295 on March 29.
This massive payout increase raises the following question: Should you buy TJX Companies' stock? Let's take a look at its fundamentals and valuation to get an answer.
An excellent year and strong future growth prospects
TJX Companies posted robust sales and non-GAAP (adjusted) diluted earnings per share (EPS) growth in its fiscal year ended Jan. 29, 2022.
The company reported $48.5 billion in net sales in fiscal year 2022. This represents a 51.1% growth rate over the prior fiscal year. And more suitably, TJX Companies' net sales surged 16.4% higher over the pre-COVID fiscal year 2020.
There were two elements to the company's high net sales growth in fiscal year 2022.
First, TJX Companies' comparable sales advanced 15% higher in fiscal year 2022 compared to fiscal year 2020. This is excluding the days in the fourth quarter of fiscal year 2022 when many of TJX Companies' international stores were closed due to government restrictions aimed at containing the omicron variant.
With COVID vaccinations widely available throughout most of fiscal year 2022, the company's foot traffic rose as more customers felt comfortable returning to in-person shopping. And the passage of the American Rescue Plan stimulus package provided consumers with more disposable income to spend at TJX Companies' stores.
Second, TJX Companies' total store count increased 3.5% from fiscal year 2020 to 4,689 at the end of fiscal year 2022. Higher comparable sales and more stores translated into even higher total net sales.
TJX Companies' adjusted diluted EPS rose 6.7% over fiscal year 2020 to $2.85 in fiscal year 2022. The company's higher net sales base was partially offset by a 110-basis-point drop in net margin to 6.8% in fiscal year 2022.
Looking out over the next five years, analysts anticipate that TJX Companies' adjusted diluted EPS will compound at 13.1% annually.
Image source: Getty Images.
Double-digit annual dividend growth potential
Aside from TJX Companies' double-digit annual earnings growth outlook, the stock's dividend also appears to be safe.
That's because TJX Companies' dividend payout ratio will be approximately 36% for the current fiscal year. This gives the company the capital it needs to repurchase shares, open new stores, and repay debt.
That explains why I'm expecting low-double-digit annual dividend growth from TJX Companies over the next several years. And better yet, this is on top of an already market-beating 1.9% dividend yield.
Quality at a sensible valuation
TJX Companies is a wonderful business. And the cherry on top for investors is that its stock doesn't appear to be overpriced.
TJX Companies' forward price-to-earnings (P/E) ratio of 19.6 is only slightly above the 18.3 forward P/E ratio of the S&P 500 index. That's a rational premium to pay for a high-quality stock like TJX Companies. And the stock also seems to be fairly valued based on its trailing-12-month (TTM) price-to-sales (P/S) ratio. TJX Companies' TTM P/S ratio of 1.6 is in line with its 10-year median of 1.6. This is what makes the stock a screaming buy for investors this month.
