The Kohl’s Corporation (KSS) Companies cut its dividend because of intense competition, inflation, and a stressed customer. Comparable sales are now negative, and tariffs will affect the firm’s results. The firm reduced its dividend during the pandemic in fiscal year 2020 and increased it in 2021 and 2022, but it was constant for 12 quarters.
The share price has fallen precipitously since March 2022. Investors sold this dividend stock because of worries about the economy, poor results, and a possible dividend cut as safety decreased. Depending on economic conditions and earnings results, another cut may occur in the future.
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Overview of Kohl’s Corporation
Kohl’s was founded in Wisconsin in 1962. It is a department store with about 1,175 stores in 49 states. Kohl’s sells clothing, shoes, beauty products, home goods, and baby items through its stores and website. It offers major brands like Nike, Levi’s, Carter’s, Addidas, Nine West, etc. The retailer also sells items from its own private labels like Sonoma Goods, American Beauty, Apt. 9, Croft & Barrow, Jumping Beans, So, Tek Gear, and Urban Pipeline.
Total revenue was $16,221 million in the fiscal year 2024 and in the past twelve months. Kohl’s fiscal year ends on
Dividend Cut Announcement
During the fourth quarter fiscal 2024 results announcement on Tuesday, March 11th, Kohl’s Companies (KSS) lowered its dividend payout. The company’s quarterly dividend rate was $0.50 per share before the announcement. The dividend is now $0.125 per share, a 75% reduction. In the quarterly results on March 11th, the announcement stated,
“On March 11, 2025, Kohl’s Board of Directors declared a quarterly cash dividend on the Company’s common stock of $0.125 per share. The dividend is payable April 2, 2025 to shareholders of record at the close of business on March 21, 2025.”
Later, in the earnings call transcript, the company’s CFO stated,
“Given our priority to rebuild the cash balance, the Board has made the decision to reduce the dividend. Although we remain committed to returning capital to shareholders, this reduction allows for greater balance sheet flexibility. This morning, the Board declared a quarterly cash dividend of $0.125 per share payable to shareholders on April 2.”
Effect of the Change
By executing a 75% dividend cut, Kohl’s sought to reduce its dividend to provide financial flexibility because of a challenging economic and retail environment. The firm is forecasting weak net and organic sales growth in fiscal 2025. The company’s dividend rate has been constant since early 2022, so it did not have a streak. The result is less free cash flow is required for the dividend payout, allowing the retailer to rebuild its cash balance and reduce debt.
Challenges
Kohl’s is facing a challenging economic environment globally because of intense competition for online retailers and other department stores, inflation, and a stressed customer. In addition, tariffs will significantly impact the supply chain of brands the company sells.
Competition
Kohl’s’ faces significant competition in retailing for conventional and online retails. Although it is the largest department store, it has no competitive advantage over JCPenny. Macy’s, Dillard’s, Target, Ross Stores, and Walmart. It cannot claim the lowest prices, widest selection, or best locations. All of these have similar omnichannel strategies, and Amazon is a persistent competitor.
Inflation and Stressed Consumers
Inflation remains a primary concern of retailers. Cost of goods inflation had stabilized but may be rising again. Inflation impacts margins because not all costs can be passed to customers immediately. Additionally, labor inflation remains higher than usual, placing upward pressure on wages. Low unemployment has made finding inexpensive labor difficult.
Tariffs
Most items sold at Kohl’s are produced in countries such as China, Vietnam, India, etc. Tariffs will result in higher prices and affect the top and bottom lines.
Dividend Safety
Kohl’s dividend safety was declining because of lower revenue and earnings per share since the pandemic. Earnings per share peaked in fiscal year (FY) 2022 at $7.33, fueled by government largess, but plunged dramatically to a loss in FY 2023 before recovering to $2.85 in 2024. They are expected to fall further to $1.50 per share in FY 2025.
As a result, as seen in the chart below from Portfolio Insight*, the dividend yield climbed rapidly to well over 10%. This value is usually associated with a distressed company, especially when dividends are held constant, and EPS is declining. It was much greater than the 5-year average of 7.73%. After reducing the dividend by approximately 75%, the forward dividend yield is around 5.32%, but it has risen to 7.68% because of a falling share price. The quarterly rate is $0.125 per share. However, the yield is still significantly higher than the S&P 500 average.
The annual dividend now requires about $55.5 million ($0.50 yearly dividend x 111 million shares), compared to $222 million in FY 2024. In addition, based on consensus 2025 estimates of $1.50, the dividend payout ratio will shrink to around 33%. We expect the annual difference in cash flow requirements to enhance liquidity and allow the firm to reduce debt. The firm aims to rebuild its cash balance, reducing its reliance on the credit revolver and lowering overall leverage.
Although the dividend is in a better position and more secure now, the firm’s dividend is not entirely safe. In addition, the restaurant firm receives a dividend quality grade of ‘F’ from Portfolio Insight. Hence, Kohl’s is in the bottom percentile of dividend stocks tracked. We view the equity as at risk for another dividend cut unless the results improve.
Final Thoughts on the Kohl’s (KSS) Dividend Cut
Before the pandemic, Kohl’s was a dividend growth stock, consistently increasing the annual dividend. However, COVID-19 interrupted the streak and reduced the payout in FY 2020. The distribution was increased in FY 2021 and 2022 before being held constant. However, severe conventional and online competition, inflation, and a stressed customer have created significant challenges for the firm. Moreover, tariffs will probably affect sales and earnings. In addition, the decline in EPS has been severe. As a result, Kohl’s cut its dividend.
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.