Compare retailers by testing whether earnings and cash flow can support their dividends after capital spending, then assess debt alongside liquidity, lease obligations, and cash-flow consistency. A high dividend yield alone does not show that a payout is safe. Use current annual reports, align fiscal periods, and check how each company defines its measures before comparing results.
Start with dividend coverage, not yield
A dividend yield describes a stock’s annualized dividend relative to its share price; it does not tell you whether the company can keep paying. To assess support for the payout, compare cash dividends with both earnings and cash available after capital expenditures. Review several fiscal years, and separate ordinary dividends from special distributions.
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Operating cash flow is not the same as free cash flow. One common company-defined measure subtracts capital expenditures from operating cash flow, but issuers may define free cash flow differently and label it a non-GAAP measure. For each retailer, inspect the definition and reconciliation in its filing, then compare the underlying operating cash flow and capital expenditures as well as the company’s headline figure. The SEC-filed annual report at this link defines free cash flow as operating cash flow minus capital expenditures and describes it as non-GAAP.
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- Compare dividends paid with net earnings and operating cash flow for the same fiscal period.
- Subtract capital expenditures when examining cash left for dividends, debt repayment, or other uses.
- Track the relationship across multiple years rather than treating one year as a durable pattern.
- Identify special dividends separately; they can make a year’s total distribution look unlike the recurring commitment.
Dillard’s reported $717.0 million in operating cash flow and $484.9 million in dividends in fiscal 2025. The dividend total included a record special dividend, so it should not be read as a recurring annual payout. The company also reported $592.6 million returned through dividends and share repurchases that year. These figures illustrate why payout components matter; they do not establish a safety threshold for retailers generally. See the Dillard’s fiscal 2025 Form 10-K.
#1 Best Overall
Assess debt together with liquidity and fixed obligations
A debt figure on its own can obscure whether a retailer has the cash and near-term resources to meet obligations. Review short- and long-term borrowings, cash and short-term investments, debt maturities, credit facilities, interest costs, and operating cash generation. Also identify lease liabilities: a reported debt total may exclude them even though leases represent fixed commitments.
At January 31, 2026, Dillard’s reported $521.7 million of debt excluding operating lease liabilities and $1.073 billion in cash and short-term investments. The exclusion is important: the debt figure should not be mistaken for a measure that includes every fixed obligation. Its Form 10-K provides the company’s reported figures and context.
Rank #2
Read management’s leverage objective as company policy
Kroger states a target range of 2.30 to 2.50 for net total debt to adjusted EBITDA and says it is committed to maintaining its current investment-grade debt rating while returning to that range. This is Kroger’s stated objective, not an industry benchmark or an independent conclusion about risk. Compare the target with the company’s actual results, liquidity, maturities, and obligations. Kroger also says dividend growth is subject to Board approval, so management’s policy language is not a promise that a future dividend will be declared. See its fiscal 2025 Form 10-K.
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Retail cash flow can shift with inventory purchases, payment timing, and changes in accounts payable. Read operating cash flow alongside earnings, capital spending, and working-capital movements. If cash flow improves or weakens sharply in one year, check whether the filing attributes the change to underlying performance, timing, or both.
Rank #3
Target’s 2025 annual report describes an operating cash-flow decrease reflecting lower net earnings and the net impact of lower accounts payable leverage and inventory purchases. That example shows why a single year’s cash result may need explanation rather than a simple pass-or-fail interpretation. Its discussion is in Item 7 of Target’s 2025 annual report.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Compare capital allocation and definitions fairly
Dividends compete with reinvestment, debt repayment, and share repurchases for capital. Look at these uses together and ask whether dividend payments leave room for necessary investment and stated debt objectives. A company’s board retains discretion over dividend declarations; do not infer a guaranteed future payout from a stated intention to grow dividends.
Before ranking two retailers, align their fiscal periods and review the definitions behind their metrics. Company-defined free cash flow and adjusted leverage ratios may not be calculated alike. Comparable-sales definitions also vary: a filing warns that such calculations may not be comparable across retailers and that non-GAAP measures can differ from similarly titled measures at other companies. Show reported inputs and reconciliations rather than treating matching labels as proof of matching calculations. See the SEC-filed annual report’s discussion of comparability limits.
Quick Recap
| Comparison area | What to inspect | How to interpret it |
|---|---|---|
| Dividend burden | Cash dividends paid, earnings, operating cash flow, capital expenditures, and free cash flow | Look across multiple years; distinguish special distributions and consider working-capital effects. |
| Debt and liquidity | Short- and long-term debt, cash and short-term investments, maturities, credit facilities, interest burden, and lease obligations | Consider near-term obligations and available liquidity, not just a debt ratio; keep excluded leases visible. |
| Cash-flow resilience | Operating cash flow, capital spending, working-capital changes, inventory, and cash conversion over time | Separate operating generation from timing effects and management-defined adjustments. |
| Capital allocation | Reinvestment, dividends, debt repayment, buybacks, and stated credit or leverage objectives | Judge whether distributions coexist with investment needs and debt goals; dividend declarations remain subject to board decisions. |
| Comparability | Fiscal-year dates, accounting definitions, comparable-sales definitions, and non-GAAP reconciliations | Align periods and definitions before ranking; similarly named metrics are not automatically equivalent. |
A practical filing-by-filing comparison
- Choose a consistent period. Use the latest annual reports available for both retailers and note their fiscal year-end dates before comparing figures.
- Record the payout. Capture cash dividends paid, earnings, and any special dividends; do not substitute the current yield for historical cash paid.
- Calculate cash coverage consistently. Compare dividends with operating cash flow, then with free cash flow using a clearly stated definition that accounts for capital expenditures.
- Explain unusual cash-flow changes. Review inventory, accounts payable, earnings, and capital spending to identify whether a year’s movement may reflect timing or operations.
- Map obligations against liquidity. Note debt, cash and short-term investments, maturities, credit availability, interest costs, and lease liabilities.
- Check capital priorities and definitions. Read the company’s leverage goals, dividend policy language, metric reconciliations, and board-discretion disclosures before drawing a conclusion.
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