A Close Look at TJX's 25% Dividend Increase

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Putting a spotlight on management's confidence in the company, retailer TJX Companies (NYSE: TJX) announced a particularly strong dividend increase a few weeks ago, boosting its payout by 25%. The robust dividend increase marks an acceleration in dividend growth -- and it was announced alongside a substantial share repurchase program.

TJX's optimistic capital return program has been made possible by strong underlying business performance, including consistent comparable-store sales growth. Here's a closer look at TJX's dividend increase, its share repurchase authorization, and the underlying fundamental strength supporting them.

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TJX's sharp dividend increase

Announced alongside its strong fourth quarter, TJX said it planned to increase its quarterly dividend to $0.39, or $1.56 annually. This would give TJX a dividend yield of about 1.9%, up from a trailing-12-month dividend yield of about 1.5%. The dividend will be declared in April and be payable in June, management said.

TJX's dividend increase marks an acceleration in the growth of its payout. Not only is it up from a 20% dividend increase last year, but it's above an average annual increase of 23% over the last 22 years and it's up from an average annual growth rate of 21% over the last five years.

TJX management also said it planned to repurchase $2.5 billion to $3 billion of its stock during fiscal 2019, which ends on Feb. 2, 2019. Further, with $1.1 billion remaining in TJX's fiscal 2018 repurchase program, TJX is currently authorized to repurchase as much as 6% of its outstanding shares.

TJX CEO Ernie Herrman was careful to emphasize that its plans to return cash to shareholders still leave room for investment in its business:

Impressive execution

TJX's notable dividend increase and repurchase program has been enabled by solid all-around business performance. Fourth-quarter earnings per share was $1.37, or $1.19 when excluding several one-time benefits to earnings per share during the quarter. This compares to $1.03 in the year-ago quarter. Fourth-quarter comparable sales on an adjusted 13-week basis increased 4% year over year, on top of a 3% increase in comparable sales in the year-ago quarter.

Zooming out beyond the quarter, TJX has delivered consistently strong results for shareholders, including over two decades of growth in comparable store sales. And, over the past five years, revenue and earnings per share have increased at average rates of 7% and 11%, respectively.

While TJX's strong dividend growth and share repurchases are undoubtedly fueled mostly by strong fundamental performance, another catalyst for fiscal 2019 was the 2017 Tax Cuts and Jobs Act, which is allowing TJX to repatriate over $1 billion in cash from its TJX Canada division during fiscal 2019.

Combining its long track record of notable fundamentals, TJX's impressive results in its most recent quarter, and the 2017 Tax Act, TJX looks well-positioned to support a strong capital return program for years.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.