“Brett, I bought something for the girls. From Carter’s. Let me know when you get it.”

My mom thinks that postal delivery is a 50-50 proposition. She hedges her downside by purchasing 4X as many clothes as my young daughters actually need!

“Mom – thanks. Will do. And, you know, they’re probably good on dresses for now. They’ll be up another size in a few months.”

“Oh don’t you worry about that. I’ve got plenty of coupons,” she countered.

My folks live 2,562 miles from their granddaughters. And while long-distance grandparenting can be a challenge, the (increasingly online) experience provided by Carter’s (CRI) satisfies two of my mom’s favorite pastimes:

1. Spoiling grandkids, and
2. Shopping.

As much as I appreciate the wardrobe help, the reason you and I are discussing infant and toddler clothing today is that these purchases are powering remarkable payout growth.

In 2018, every “brick and mortar” business must have an “Amazon story” to explain why it won’t be eaten up. A few sentences explaining – succinctly and convincingly – why the firm won’t be swallowed alive by Amazon.com (AMZN)in the years ahead.

Our favorite retail stocks tend to be, well, hidden from Jeff Bezos’ view. The legendary CEO has different investing criteria from you and me. He needs to make big bets. His firm, after all, is Amazonian – it takes large splashes to move his sales tide higher.

So while he’s busy mowing down the mainstream retail landscape, there are many niche retailers who will not only survive, but even thrive as e-commerce continues to boom in the years ahead. And they will all share two important characteristics:

1. A direct relationship with their customers.

This is what failing department stores like Macy’s (M) are missing. You walk into the store, you pay and you walk out. Their main sales interaction is purely transactional.

And in 2018, transactional is not enough. Firms built to sell in the decade ahead also have:

2. A deep “online connection” with consumers.

They have a website that is “grandma friendly” to take orders directly. They have a mobile app on their customers’ smartphones – which they can use to buy more stuff from. They have an email address so that they can advertise the next sale.

And they have friendly service reps who will take the phone call when a package is late or missing – which will assure the customer will continue to buy direct from them instead of a black box like Amazon.

I love a handful of retail stocks right now, but I’m also concerned about a couple high-yield bets that are at risk of being “Bezos’d.” Let’s look at these five retail stocks yielding up to 10.4% and separate the winners from the losers.

Best Buy (BBY)
Dividend Yield: 2.6%

Best Buy (BBY) is the little engine that wouldn’t die. Market pundits left this retailer for dead years ago, thinking it couldn’t possibly survive the war on two fronts – big-box retailers Walmart (WMT) and Target (TGT) on the left, and Amazon on the right.

But CEO Hubert Joly – acting almost like a photo negative of Sears’ Eddie Lampert – focused on improving the quality of stores, and used employee expertise to help battle the “showrooming” phenomenon that many believed would sink Best Buy. The result? A return to growth on the top and bottom lines.

Joly isn’t done throwing punches, either.

Best Buy is going “low-tech” in a grab at Toys ‘R’ Us’ customers, announcing it will expand its toy inventory in 1,000 stores this holiday season. Adding Nerf guns and Hatchimals is actually somewhat of a natural fit for BBY, which already sells the likes of video games and drones.

And investors have to love what Best Buy is doing on the income front. Joly has really put the pedal down on the payout, rewarding faithful investors with a 21% dividend hike in 2017 and a whopping 32% payout increase announced in March of this year.

Best Buy (BBY): A Near-Dividend-Doubler in Just Three Years!

L Brands (LB)
Dividend Yield: 7.4%

L Brands (LB), the company behind iconic brands Victoria’s Secret and Bath & Body Works, has a dividend yield that puts most of the retail sector to shame.

And that’s about it.

L Brands’ high yield is entirely a result of its bleeding shares, which have nearly halved in value this year. The dividend hasn’t budged for years, in large part because of shrinking profits as its brands lose their luster, especially among increasingly important Millennial wallets. The formerly premium-priced lingerie dealer has been forced to slash prices to compete, cramping margins and eroding its once prestigious brand. It also has been forced to put the ax to Henri Bendel, finishing off the fashion brand after 123 years of operations “to improve company profitability and focus on our larger brands that have greater growth potential.”

The company’s second-quarter report made income investors do a double-take. L Brands significantly stepped down its full-year profit guidance, from $2.70-$3.00 to $2.45-$2.70. See, LB pays out $2.40 annually in dividends, so it would barely be covering its payout if profits come in at the low end of guidance. A special dividend – a pretty regular occurrence at L Brands – is almost certainly out of the question this year.

Don’t expect the Christmas season to turn around the long-term decay here, but do start expecting a dividend cut in the next couple years.

Bah humbug!

Prologis (PLD)
Dividend Yield: 2.9%

What’s an industrial real estate investment trust (REIT) got to do with the holiday season?

Everything, when you’re talking about Amazon’s largest landlord.

Prologis (PLD) is a warehouse-focused REIT that boasts 771 million square feet across 3,742 buildings in 19 countries on four continents.

The shift to e-commerce directly benefits Prologis, whose properties are increasingly necessary for any retailer shifting their goods from brick-and-mortar stores to warehouses, where they’ll sit until delivery. And this is a rapid shift, with the company and Goldman Sachs estimating 152% projected growth of e-commerce sales between 2015 and 2020.

E-Commerce Sales Are Exploding

You can see this potential in Prologis’ tenant lineup. Amazon is a major presence, at 16 million square feet as of last year, and Walmart and Best Buy are among other retail customers. But other major tenants include delivery companies such as UPS (UPS), FedEx (FDX) and DHL – more e-commerce beneficiaries.

Prologis has its hand in a lot of other pies, too – 5,500 customers, to be specific, also including companies such as BMW, PepsiCo (PEP) and even the U.S. government.

The REIT doubled down on its opportunity earlier this year when it acquired rival DCT Industrial Trust for $8.4 billion, adding 71 million square feet of space on the East and West Coasts. That, and Americans’ growing love affair with online ordering, makes it all the more likely that PLD will continue growing both its bottom line and its dividend, which have been exploding for years.

Home Delivery Is Making Prologis (PLD) Shareholders Rich

GameStop (GME)
Dividend Yield: 10.4%

GameStop (GME) would seemingly have it made right now. The Nintendo (NTDOY) Switch is selling like hotcakes, Sony’s (SNE) early-year PlayStation 4 sales were ahead of projections and NPD Group says Xbox One sales have doubled from 2017. Take-Two Interactive’s (TTWO) Red Dead Redemption 2 did $725 million retail in just three days, prompting the company to call it “the single-biggest opening weekend in the history of entertainment,” as it actually beat out Disney’s (DIS) Avengers: Infinity War’s opening-weekend box office.

Video games are doing great.

GameStop is not.

The company’s last quarterly results, out in September, included smaller revenues and a net loss of $24.9 million that was wider than the year-ago period; adjusted profits of 8 cents per share missed the mark, too. All told, sales should decline 2% to 6% this year.

GME is still making enough of a profit to comfortably cover its dividend, by almost double. But management tipped its hand at its own problems earlier this year by keeping the payout flat after years of token improvements.

This is ominous. If GameStop can’t catch a break while console sales are red-hot, it’s going to be staring at an enormous problem when the console cycle slows down again, and as more game purchases are done online.

Packaging Corporation of America (PKG)
Dividend Yield: 3.4%

Packaging Corporation of America (PKG) is another non-retailer that you can nonetheless leverage to profit off the rise of e-commerce.

Packaging Corp offers a laundry list of solutions, from corrugated containers to retail packaging and displays to storage boxes to packaging supplies and so, so much more. And if all of that sounds like the kind of products that are going to be in high demand during the busiest time of the year for online retailers … that’s because it is. However, PKG also has a robust industrial operation that means its growth isn’t wholly dependent on the boom in e-commerce.

So far, almost all important metrics point up, up, up. Operational cash flows have grown from $608 million in 2013 to $856 million last year. Earnings have spiked from $4.53 per share in 2015 to $6.31 in the trailing 12 months.

Boxes Are a Booming Business. Who Knew?

What’s even more outstanding: Even though the dividend has almost doubled since 2004, the company has paid out just $2.21 per share through the first nine months of this year, against a $5.64 profit – a 39% payout ratio. That means PKG can keep throttling ahead with aggressive dividend hikes going forward while still being able to spend what it needs to spark continued business growth, too.

Editor's Note: The stock market is way up – and that’s terrible news for us dividend investors. Yields haven’t been this low in decades! But there are still plenty of great opportunities to secure meaningful income if you know where to look. Brett Owens' latest report reveals how you can easily (and safely) rake in 8%+ dividends and never worry about drawing down your capital again. Click here for full details!

Source: Contrarian Outlook

The latest chapter in the current stock market story centered around Apple. The company announced it would no longer report how many units it sells of its iPhone. While many are speculating why Apple is doing this, I believe it’s because they want to make less transparent the loss of market share in the emerging markets, where competitors like China’s Huawei are gaining share rapidly.

This episode made me think back to when I was still a licensed investment professional and would sit down with clients to discuss their financial situation. Sadly, I found a very common mistake, which I’m sure is still true today…

 A lack of diversification.

Usually, clients would have way too much money in one sector – U.S. technology companies. That’s all well and good until the market hits a weak patch. Then, as we saw most recently, the heaviest losses occur in technology – the sector that had the biggest gains.

I suggested that clients move a little of money invested in technology stocks into what could be called ‘sleep well at night’ stocks. That is, quality conservative stocks, but that have a growth component. I would like to look for steady-as-you-go firms, but those that have some ‘trigger’ that will push the company into a faster growth mode from its past growth trajectory.

Just so you are clear on what exactly I mean, let me give you two examples from the consumer staples sector of two rock-solid companies – one domestic and one foreign – that are in the midst of a makeover that will lead to faster growth.

Coke and Coffee

The first company is no other than Coca-Cola (NYSE: KO). I believe its new CEO, James Quincey, has just begun a change in Coke that is larger than what McDonald’s CEO Steve Easterbrook did to the change the fortunes at the ‘Golden Arches’.

First, Coke pulled off a $5.1 billion deal to buy the Costa Coffee chain from Britain’s Whitbread. The transaction represents a full-fledged leap into the global coffee market, where it has little presence currently. “Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand,” said James Quincey, president and CEO of Coke. “Costa gives us access to this market through a strong coffee platform.”

This move continues Coke’s process of diversifying away from the fizzy and sugary drinks that made the company famous. These type of drinks have declined in popularity among increasingly health-conscious consumers. The deal is all part of the company’s effort to reposition itself as a “total beverage company”.

According to Euromonitor, the global coffee industry is valued at more than $80 billion, and has been expanding at an annual rate of more than 5%. Here in the United States – the world’s biggest coffee market – most of the growth is coming from a resurgence in the café culture among millennials aged 18 to 34.

According to a recent survey conducted by the National Coffee Association, 15% of millennials had their last cup of coffee in a café and 32% had an espresso-based drink the day before the survey, the highest share for any age group. These are the type of consumers Coke is trying to reach through its purchase of Costa.

As Mr. Quincey points out, coffee is among the “strongest growing [beverage] categories in the world” and the company was missing out on this macro trend. As the chart below shows, the potential for growth of coffee beverages versus soft drinks is high.

And consider that Costa has recently begun its push into China, where it pitches its drinks to Chinese consumers as a luxury treat. It still has only 460 shops there, so the potential for growth is enormous. Starbucks has 600 shops in Shanghai alone. Costa did not have the financial firepower for a big push into China, but now with Coke’s financial muscle, it does.

Coke and Pot

And there’s more to the transformation of Coke than coffee… it may go to pot too.

Coke says it is looking at the possibility of infusing CBD into “functional wellness beverages around the world.” The company is no doubt looking to broaden the reach of cannabis-infused beverages into functional wellness categories, enabling the company to potentially one day ‘own’ the non-recreational cannabis-infused beverage category.

I have no doubt that drinks containing cannabidiol (CBD), a non-psychoactive marijuana ingredient focused on pain management, could become a very big business for Coke.

Related: Buy These 3 Stocks to Profit From Marijuana Legalization

Cannabis research firm Brightfield Group, recently raised its projections for the CBD industry, finding it could reach $22 billion in market size by 2022. If Coke is able to capture just 10% of that projected market size, it would bring in $2.2 billion in revenue by 2022.

Even before the company-altering changes, Coca-Cola is already coming alive. In the latest quarter, it produced a 6% rise in organic sales, helped by bottled water and lower sugar alternatives to the soft drink. Latin America led the way, up 19%, while Europe, the Middle East and Africa rose 9%. North America was slower, up 2%.

Make Up for Losses With L’Oreal

The second company in the consumer sector comes from Europe and is best known for its cosmetics, France’s L’Oreal (OTC: LRLCY). And here the main story is Asia and China.

Its stock surged more than 7% after its recent earnings report thanks to Asian demand for its high-end beauty products showing no sign of waning, despite the trade war. Sales in the Asia-Pacific region soared 25.8%. This demand pushed third-quarter sales to the highest quarterly growth rate in a decade!

The acceleration in growth in the third quarter was led by the company’s luxury division, home to brands such as Lancôme, Yves Saint Laurent and Giorgio Armani, which grew by 15.6%. Its active cosmetics division lifted revenue by 13.1%, driven by demand for so-called dermo-cosmetics, products that focus on skin health.

Its travel retail and e-commerce divisions are also achieving rapid growth. L’Oréal said that travel retail gained 29.9% during the quarter, while e-commerce was up 38.3% and now represents almost a tenth of total sales. E-commerce is accelerating thanks to the success of L’Oréal’s luxury brands on sites such as Alibaba’s Tmall platform in China.

I fully expect L’Oreal to continue to perform well because Asia’s enthusiasm for skincare and makeup is unlikely to fade. Even if an economic slowdown hits, sales of low-ticket luxury items will hold up better than more costly items. And Chinese per capita spending on makeup is still just a small fraction of the U.S. figure, so there is ample scope for growth there.

Neither company will go up 25% a year, as do tech stocks when they’re hot. But they will allow to sleep well at night and give you a decent total return. That’s why I do own both companies.

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If you’re still fearful about stocks as we pick up the pieces from the market’s grim October, let me ease your mind with one chart:

Stocks Still a Long-Term Winner

As you can see, that’s the market’s return over the last 10 years. As you can also see, stocks have returned nearly 2.5 times a person’s original investment in just a decade! Few other investments can make that claim.

The real problem? Income.

The average S&P 500 stock pays a lousy 1.9%, but let’s say you need 8% of your portfolio in monthly income to pay your bills in retirement. If you buy the popular SPDR S&P 500 ETF (SPY) and withdraw 8% monthly, you’ll be forced to sell in a falling market like the one we’ve seen. That will amplify your losses without letting you take advantage of the market’s tendency to snap back.

Fortunately, there’s a better way. You just need to buy a fund that doesn’t need to sell holdings to maintain that 8% income stream.

Sounds impossible, right? It isn’t. In fact, there’s a group of closed-end funds (CEFs) that’s designed to do just that: provide reliable income with minimal portfolio turnover, especially during moments of market weakness, where fund managers are scooping up deals left and right.

The key is to find a safe, reliable sector that provides a high income stream and doesn’t go down every time the market does. That sector exists: utilities.

In the last month, every single sector has fallen, even the supposedly safe and defensive consumer staples sector, with only one exception: utilities.

Utilities Buck the Trend

The reason for this is straightforward: with the markets (wrongly) panicking that the economy is about to take a turn for the worse, there’s a sudden thirst for reliable income, and utilities have provided that for decades.

This does mean that the Utilities SPDR ETF (XLU) and its 3.4% dividend yield are particularly compelling right now, but don’t settle for that; we can do much better with 10 CEFs that more than double up XLU’s payout.

The average income from a utility CEF right now is a whopping 8.5%, or two and a half times greater than what XLU pays. So a $100,000 investment would get you $708.33 per month in income from these CEFs, much better than the $283.33 you’d get from XLU.

Utility CEFs Deliver Big Dividends

Source: Contrarian Outlook / CEF Insider

What’s more, all but one of these funds have impressive long-term annualized returns of over 6%, with 4 delivering double-digit returns over the long haul:

Strong Returns Across the Board

In fact, 4 of these funds have beaten the S&P 500, and half of them have beaten the utilities index fund. But even that strong track record isn’t the best reason to buy these funds now.

With two (very big!) exceptions, all of these funds are priced at a discount to their net asset value (NAV), meaning you’re buying their holdings for less than their true intrinsic value. Three of these funds have double-digit discounts:

Utility CEFs Are on Sale (except for 2)

Source: Contrarian Outlook / CEF Insider

While GUT and DNP might best be avoided right now because of their high premiums, the combined big discounts and strong long-term returns with MGU, UTF, MFD and UTG make them all attractive buys. On top of that, buying these 4 funds would get you a diversified utility portfolio with a whopping 8.9% yield—even higher than the average yield for all utility CEFs.