US & Canadian retail industry payout growth is projected to decelerate to 2.7% in FY'20 from 6% expected in FY'19.

• Home Depot (HD), Walmart Inc (WMT) and CVS Health Corporation (CVS) are expected to drive the industry payout in FY'20.

• Three stocks showing high dividend growth in FY'20 are TJX Companies (TJX), Designer Brands (DBI) and Tiffany & Co. (TIF).

• We highlight stocks with the highest yields in the industry and our dividend sustainability score for each.

E-commerce has grown rapidly over the last few years, as consumers continue to shift their buying preferences online. In the U.S., e-commerce now represents a $146 billion market or 9% of total retail sales. E-commerce and changing consumer preference is expected to impact US & Canadian retail companies' dividend payout and sustainability.

Despite the challenging outlook for the retail industry, overall, we expect US & Canadian Retail companies to pay $32.9bn (+6%) in FY'19 and 33.7bn (+2.7%) in FY'20. Our dividend outlook is backed by retail companies who have a high margin of safety in their payout as well as strong e-commerce business.

Retail industry outlook

Last year, despite strong consumer fundamentals backed by household tax cuts, holiday retail sales disappointed, growing just 2.1% y-o-y (the worst holiday retail sales growth since 2009). Now with the holiday season approaching, retail industry outlook is expected to remain positive as elevated levels of consumer mood signal that consumers are confident about ability to spend and have intentions to do so. As such, IHS Markit U.S. Economics forecasts strong holiday sales growth of 5.2% and online holiday sales growth of 21.0%. Subsequently, we expect strong holiday season sales will help catapult retail industry aggregate payout growth to 6% for 2019.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.