Watch these retail stocks rebound after putting plans in place to fire up growth and put their businesses back on track. Buy these three stocks before the retail extravaganza of Black Friday and put some extra pop in your brokerage account.
Higher wages mean higher costs, but what if higher paid employees is a long-term positive. Here are three companies that could be turning around thanks to more ‘efficiency wages.’
There are more than a few brick-and-mortar shops out there that have been disappointing investors. A big shift toward healthy living and e-commerce are two of the main culprits for catching traditional brick-and-mortar shops off guard.
What’s the answer? Paying employees higher wages is a great start. But the stigma is that higher wages hurt the bottom line for companies.
However, as it turns out, better-paid employees can help boost company performance. There are a handful of companies that have realized this — for better or worse and better late than never.
To start, the largest retailer in the world is blazing a path for a more employee-friendly corporate culture. Wal-Mart (NYSE: WMT) did one of the largest single-day private sector pay increases ever earlier this year.
Others have followed suit in what could be a changing of the guard in how big companies treat and pay their workers. With all this in mind, here are the top three higher wage turnaround stocks:
Top Higher Wage Turnaround No. 1: Wal-Mart (NYSE: WMT)
In truth, Wal-Mart could be blazing the path for a turnaround in all brick-and-mortar retailers, but Wal-Mart might have the most upside out of the group.
Wal-Mart has been one of the biggest culprits of poorly paying employees, with customer service taking a backseat to cost cuts. It shows too, as sales have been slowing for some time now. Sales at Wal-Mart stores that opened more than a year fell for five straight quarters — their longest streak ever.
Since upping wages, sales at Wal-Mart have been rebounding nicely. Sales at nearly 75% of its stores have hit its targets in the last year. Yet, the stock still trades at a 15 times earnings, while top competitor Costco (NASDAQ: COST) trades at over 28 times.
Now, Costco has spent years paying workers handsomely. And they’ve been doing very well. Shares of Costco have outperformed the S&P 500 nicely over the last decade. The key is that paying employees more means happier, more productive employees, which leads to a better-looking store, with much better customer service. Wal-Mart could see the same success that Costco figured out years ago.
Top Higher Wage Turnaround No. 2: McDonald’s (NYSE: MCD)
McDonald’s, which has been upping its average hourly rate since mid-2015, is another old-world corporate culture company that needs an overhaul. If it worked for Wal-Mart, it can work for McDonald’s. The company is looking to help the turnaround with new menu items to cater more toward the healthy living crowd.
The other thesis is to franchise more of its stores. That turns McDonald’s into more of a higher margin business that can focus on more important things like streamlining operations, menu innovation, and corporate culture. For a restaurant company that offers a 3.4% dividend yield and is a $100 billion market cap company, it can still be a growth opportunity.
Top Higher Wage Turnaround No. 3: Target (NYSE: TGT)
Wal-Mart top competitor, Target, also makes our list of brick-and-mortar retailers looking to turn around their misfortunes by raising its employee wages. The rise of Amazon.com (NASDAQ: AMZN) and dollar stores have been putting the squeeze on Target of late.
Shares of Target are down 9% in the last year and are now even cheaper than Wal-Mart, trading at just 13 times earnings. Target has sold off its in-store pharmacies to CVS (NYSE: CVS) and is moving toward smaller store formats. This has helped Target enter more urban markets, where full-size retail locations won’t work, such as Chicago or New York City.
In the end, investing in poor corporate culture is never a wise decision. However, it turns out that the ‘fix’ might be a rather non-revolutionary idea – pay employees more. Granted, this might hurt profitability in the near-term, but better-trained employees with advancement opportunities might create a better shopping environment that will draw customers into the stores and away from the online experience.
In the end, the quest for market-beating returns might become more difficult as the economy battles with low GDP growth and lower for longer interest rates. A turnaround investing strategy is one way to target high returns, but it also comes with a higher degree of risk. However, I’ve found over my decades-long investing career that high-yield dividend stocks offer the most consistent returns no matter if the market is moving up or down. These are stocks yielding over 5% and sometimes even up to 13% that will pay you cash dividends multiple times a year.
And, I have dedicated years of my time to searching out the best of the best high-yield stocks that won’t cut their dividends, pay a high current yield, and have the potential for dividend growth; finding stocks like this is an integral part of my income strategy for my newsletter, The Dividend Hunter which features 20 of the safest high-yield stocks available in the marker through my Monthly Dividend Paycheck Calendar.