Despite the Federal Reserve's aggressive pace of interest rate hikes and the recent collapse of several prominent regional banks, the U.S. economy and job market have remained quite solid. Nevertheless, survey research consistently shows that a majority of Americans think a severe recession could be right around the corner.
For those who fear that a recession is looming, buying stocks might seem too risky -- particularly because most stocks continue to trade at high valuations. However, TJX Companies (TJX -0.06%) could be a great investment even if a recession begins soon. Over the past 25 years, the off-price retail giant has proven itself to be extremely resilient and nearly recession-proof. This has supported rapid dividend growth and strong share price performance.
A resilient multinational retail giant
In the U.S., TJX is best known for its popular T.J. Maxx, Marshalls, and HomeGoods discount chains. The company has successfully expanded internationally, too, and operates multiple retail concepts in Canada, Europe, and Australia.
Whereas many discretionary retailers are highly sensitive to economic conditions, TJX benefits from its off-price business model. When consumers feel compelled to pull back on spending, they tend to trade down from pricier stores to TJX's discounted brand-name merchandise.
That's why TJX was able to grow comparable sales for 24 consecutive years prior to the COVID-19 pandemic. (It even eked out a 1% comp sales gain during fiscal 2009, despite the Great Recession.) Over this period, TJX grew its revenue more than sixfold, from $6.7 billion in fiscal 1997 to $41.7 billion in fiscal 2020 (the last year before the pandemic hit).
TJX Revenue (Annual), data by YCharts.
The pandemic did cause revenue to plummet, due to TJX's focus on in-store shopping. Indeed, most of its stores had to close at the peak of the pandemic, as they did not sell "essential" items.
However, once stores reopened, TJX bounced back quickly. Annual sales reached new record highs in each of the past two years. Revenue is on track to surpass $50 billion for the first time this year, supported by a global store base of nearly 5,000 locations.
New growth opportunities come into focus
While a recession could potentially lead to slower growth for TJX in the near term, previous recessions have consistently opened up long-term growth opportunities for the company by driving weaker competitors out of business.
Image source: TJX Companies.
This process is already playing out in the home furnishings space. Despite the economy's overall resilience, home furnishings sales have plummeted following a pandemic boom during 2020 and 2021. Several home-focused retailers have filed for liquidation this year: Bed Bath & Beyond, Tuesday Morning, and Christmas Tree Shops. TJX -- especially its HomeGoods and HomeSense chains -- will be one of the main beneficiaries of their demise.
TJX's HomeGoods segment, which includes both chains in the U.S., reported peak revenue of $9 billion two years ago. For comparison, the core Bed Bath & Beyond chain was still generating over $6 billion of revenue at that time, Tuesday Morning's sales exceeded $700 million, and Christmas Tree Shops was reportedly approaching $1 billion of annual sales. With these former rivals out of the market, HomeGoods is poised to return to strong growth over the next year.
If a full-blown recession hits, many apparel and footwear stores could close, too, giving TJX a further boost.
A rock-solid dividend growth stock
Today, TJX stock trades for 24 times its projected earnings for the current fiscal year. That's a reasonable price to pay, considering the company's long track record of growth and its market share opportunities going forward.
TJX also pays a quarterly dividend of $0.3325 per share ($1.33 annually), providing a 1.6% yield based on the current share price. That might not seem like much, but TJX has a long history of raising its dividend at a double-digit pace. In fact, TJX has more than quadrupled its dividend over the past decade.
TJX Dividend, data by YCharts.
Despite TJX's aggressive dividend increases, the company's payout ratio remains very modest at around 37%. That provides plenty of room for continued dividend growth as TJX capitalizes on its long-term opportunities to grow revenue and earnings.
This dividend growth means that patient shareholders are likely to be rewarded richly over time. TJX's share price has plenty of long-term upside, too, as the company has lots of room to continue expanding. That makes TJX stock very attractive regardless of the threat of a recession.
