The TJX Companies (TJX) Another Good Buy For a Recession

TJX is a parent company that owns many off-price discount retailers. Marshalls, TJMaxx, and Home Goods are it three U.S. names, and it also owns multiple foreign discount retailer names.

Business Model (Discount Retailer)

TJX focuses on selling fashion and home fashion names for discounted prices, offering consumers the ability to purchase comparable merchandise for cheaper costs than leading retailers. This business strategy is strongest when other companies are the weakest: recessions. While still focusing on fashion shopping, consumers may find themselves stranded for money during recessions, and TJX allows them to buy what they want for cheaper prices. TJX’s stock price easily outperformed the overall market indices during the 2008 Great Recession as well as the recession in 2000. Discount retailers have gained considerable admiration from investors and customers alike in the past few years, depicted by the company’s rapid upwards share price movement as well as uptrends in revenues and net income easily surpassing the market averages. This will help TJX considerably in the next recession, as it is now much more recognized than it was before, which will contribute to more customers turning to the company when hard times hit.

Shareholder Friendly (Buybacks and Dividends)

The company is also remarkably shareholder friendly through stock buybacks and consistently increasing dividends. The company has increased their dividends for over 15 years and show no signs of slowing or cutting their dividend. In fact, the low payout ratio of just 20% shows that the company has much room to grow their dividend and continue their streak. Also, the company has been aggressively buying back their own stock for over 15 years as well, and have almost halved their shares outstanding since that time point. The company consistently builds long-term shareholder value through dividends and stock repurchases, and will likely continue this trend in the future, as there are no foreseeable headwinds for the company, and it cash flow and revenues remain strong as ever.

Current Share Price Conditions (Lower Consumer Spending)

The current share price of TJX is not doing considerably well. After having a large run-up since 2008, shares have been very lackluster in the past few quarters as lower consumer spending has hurt both earnings and future prospects for the company. Of course, all of this is completely irrelevant to the company’s long-term ability to grow, and investors should view these minor short-term problems as a buying opportunity into a strong company that trades at a 16% discount to its peak prices a few months ago. Consumer spending for certain will pick up in the future, and investors need not to worry that the current short-term headwinds will hurt TJX in the long-term.

TJX is one of the most shareholder friendly companies I have ever seen that also offers great growth potential and protection against recessions. All investors should consider the company as a holding in their portfolio.