Department store chain Nordstrom (JWN) is a bellwether for consumer discretionary spending. Its positioning on the higher end of the market means that it thrives when the economy is heating up, and it falters when times get tough. But Nordstrom's earnings trajectory since 2010 indicates that conditions are improving quickly for the firm.
Nordstrom runs 115 full price anchor stores, and almost the same number of discounted Nordstrom Rack locations. With a customer base that's less price sensitive, the firm is able to wring much better margins out of each sale, and as a result it tends to be better situated financially than larger peers. While the U.S. department store market is pretty saturated, JWN's positioning as the service leader gives it a niche that spares it from a direct comparison to those bigger rivals. For that reason, this retailer still has a lot of room to expand its reach around the country with new store openings. Investors will want to keep an eye on how cautiously management opts to do that.In the last few years, Nordstrom's balance sheet has been expanding, but its cash position has been ballooning much faster than its debt load. Right now, cash stands at $1.2 billion, with debt at $3.1 billion. That's a reasonable amount of leverage for a department store retailer, particularly one that issues its own store credit cards, and the huge amount of cash it generates provides sufficient coverage. Right now, Nordstrom pays out a 27-cent quarterly dividend that adds up to a 1.97% yield. With profits on an upward climb, investors should expect those dividends to follow in kind. To see these dividend plays in action, check out the at Dividend Stocks for the Week portfolio on Stockpickr. And if you haven't already done so, join Stockpickr today to create your own dividend portfolio. -- Written by Jonas Elmerraji in Baltimore.
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