Staples (NASDAQ:SPLS) has long been the crown jewel among office-supply retailers, with competitive advantages that have forced its main rivals to combine forces in an attempt to survive. Yet even with all the good things that have been going on with the company lately, Staples stock only recently managed to hit 52-week highs, and it still trades for just over half what shares fetched as recently as early 2010.
As with most retail niches, office-supply sellers have had to adapt to competition from online retail. But one of Staples' greatest strengths is its attention to its e-commerce business, which is itself one of the most successful Internet-based sales operations nationwide. Let's take a closer look at Staples to see why its stock has so much potential.
What's been happening with Staples?
The biggest news that has affected Staples recently is the merger between its two main rivals, Office Depot (NASDAQ:ODP) and OfficeMax (UNKNOWN:OMX.DL). Initially, Staples stock moved in lockstep with its two rivals, initially rising with the two on the news and then falling back after investors digested the deal and apparently concluded that the transaction indicated weakness not just with the two retailers directly involved in the transaction but also with the industry's other major player as well. Since then, shares of all three companies have moved higher, but with Office Depot and OfficeMax likely to close stores once the merger is complete, Staples will be able to fill the vacuum with potentially lucrative expansion in certain markets.
But even without any merger-related gains, Staples has found ways to succeed. In its most recent earnings report, revenue dropped 3% year-over-year, but the company has refocused its attention to its online retail website. Onilne sales rose 3%, and with a restructuring that has led to smaller stores and decreased square footage while expanding the number of products available to online shoppers, Staples is clearly taking a lesson from its Internet-retail competitors to cut overhead and focus on cost-cutting.
The surprising benefit of Staples stock
What's most intriguing for many investors lately has been the steady ascent of Staples' dividend. Office Depot never paid a dividend, and OfficeMax has only recently started making payouts again. But even with the rise in Staples' share price, its yield has stayed relatively high.
What's more, Staples just raised that payout another 9% back in March, which at the time represented a yield of almost 4%, rewarding shareholders irrespective of share-price gains. With the company poised to deliver greater earnings in the years to come, Staples should maintain an even greater capacity to boost its dividend.
Delivering the best products
Finally, Staples has done a good job of bringing interesting products to its stores. Last month, the company said that it would become the first major U.S. retailer to stock 3-D printers, and it has also done a good job of making sure it carries major mobile devices, such as the Samsung Galaxy S4. By giving customers a reason to come into its stores, Staples does its best to keep its business healthy and new.
If you're looking at buying Staples stock, seeing it hit new 52-week highs might convince you that you're too late to earn big profits. But as long as the company steers itself toward more profitable business and takes advantage of its competitive advantages, then Staples has the potential to keep delivering share-price gains for a long time to come.
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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool owns shares of Staples. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.