I’m a sucker for an attractive dividend investment opportunity. And I’m convinced there’s some waiting to be exploited if holiday sales tick notably higher, as expected.

You’ll recall, in Parts 1 and 2 of our series, we evaluated the investment merits of man-purses with Coach (NYSE: COH) and non-stop celebrity endorsed products with Macy’s (NYSE: M).

Now it’s time to look at the investment case for another retailer significantly leveraged to the holiday season, Kohl’s Corp. (NYSE: KSS).

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Based in the great Midwest state of Wisconsin, Kohl’s operates over 1,100 department stores across the country.

And it competes directly with Macy’s and J.C. Penney (NYSE: JCP) for middle-class, valued-oriented shoppers.

The key difference, though, is that Kohl’s shuns mall-based stores.

Instead, it operates stand-alone stores.

The upside for consumers? Kohl’s locations are more convenient. (There are no Paul Blart mall cops or overcrowded parking lots to contend with.)

The upside for Kohl’s? The real estate is less expensive, which translates into higher profit margins.

Notwithstanding these competitive advantages, Kohl’s still can’t overcome the notoriously cyclical nature of the retail industry, which isn’t an attractive quality for a potential dividend investment. The best dividend investments, instead, operate in recession-resistant industries.

But, there’s a time and place for more speculative income investments. And that time is now for retail, as we’re coming off the bottom of the cycle. Want proof? Look no further than Kohl’s recent results…

In the third quarter, the company reported a profit of $215 million or $0.91 per share, up from $211 million or $0.80 per share a year ago.

What’s more, management shared upbeat forecasts for the fourth quarter. The head (retail) honchos expect same-store sales growth of 3% to 4%, which is a dramatic improvement over last year’s slump of 2.1%.

And in terms of profits, Kohl’s expects fourth-quarter earnings to come in between $2 and $2.08 per share.

You’ll notice the fourth-quarter earnings estimate is more than double third-quarter profits, which underscores a key point. The final quarter of the year historically accounts for about 40% of Kohl’s annual profits and about one-third of its annual sales.

In other words, the holidays can make or break the company’s year. Accordingly, it can make or break investors, too.

I’m betting on a “make” this year. Here’s why…

Despite a weaker-than-expected retail sales report from the Commerce Department last week, nobody’s panicking and backing off their projections for a strong holiday shopping season. We’re still on track for the best year since 2007.

Now, if those robust projections come to fruition, it’s certain to propel shares of all retailers higher. But especially Kohl’s.

I say that simply because Kohl’s stock is already priced at a discount, trading for 12 times earnings and only 10 times forward earnings. In comparison, the S&P 500 Index trades for 14.9 times earnings and 14 times forward earnings. So we’re talking about a potential upside of 24% to 40%.

The downside’s protected, too, thanks to Kohl’s aggressive $3.5 billion stock repurchase program. The company’s higher-than-average yield doesn’t hurt, either. At current prices, the stock yields 2.5%, compared to a yield of 2.1% for the average stock in the S&P 500.

It’s true that Kohl’s is still a fledging dividend payer, having only initiated its first payment in March 2011. Since that time, though, management’s upped its payout by 28%. And a low dividend payout ratio of just 26.9 leaves plenty of room for another double-digit increase.

So just like I concluded about Macy’s and Coach’s stocks, speculative investors might want to consider stuffing their portfolios with a few hundred shares of Kohl’s, too.

That’s it for today. In early 2013, I’ll check back on this trio of holiday dividend stocks to see if they do in fact deliver on the potential for above-average appreciation and income.

Stay tuned.

Safe investing,

Louis Basenese

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Source: Dividends and Income Daily