For all the talk of “Fed liftoff” in anticipation of Yellen & Company raising short-term rates, American consumers remain stubbornly frugal six years into a supposed economic recovery.

A recent study found that 75% of Americans now expect discounts of 60% or more in order to make a major purchase.

Yes, American auto sales are doing better than a lot of people expected. But that has a lot more to do with the age of the existing fleet than with Americans embracing retail therapy again. (The average age of cars on American roads is nearly 12 years.)

The fact is, aging demographics, stagnant wages and extended shellshock from the 2008 meltdown have all conspired to keep wallets shut

Meanwhile, stepped-up competition from online retailers like Amazon.com (AMZN) is also hitting retail stocks hard. To the extent that consumers are spending money at all, they’re doing it online.

Consider the SPDR S&P Retail ETF (XRT), a basket of some of the biggest retail stocks, XRT is down about 12% from its late-summer highs. But many individual retailers are down far more. Department store Macy’s (M) is down by nearly half in that time, and rival Dillard’s (DDS) is down a quarter.

But amid the retail-stock rubble, there are a few cheap dividend payers that might be worth a look.

Quality Retail Stocks: The Men’s Wearhouse (MW)

Current Dividend Yield: 3.6%

I’ll start with The Men’s Wearhouse, a mid-priced option for men needing to suit up.

Men’s Wearhouse stock was absolutely obliterated after a disappointing earnings report. In a nutshell, the company tried to wean its Jos. A Banks customers off of its sales pricing, and it didn’t go well. Sales dropped about 15%.

That’s bad. But it didn’t quite justify the market’s response. The shares fell by half and are now down by nearly 70% from this year’s highs in June. Men’s Wearhouse stock now trades for just 0.97 times book value, 0.27 sales and at a Shiller price-to-earnings ratio (i.e. CAPE) of 10.8.

Men’s Wearhouse stock sports a dividend yield of 3.6%, which is quite high for a retailer. The company is currently paying out 119% of its income, which naturally casts a little doubt on its sustainability.

Yet Men’s Wearhouse generates more than enough free cash flow to keep the dividends coming for the foreseeable future. So MW should be a decent turnaround play that you’ll get paid handsomely to hold.


Quality Retail Stocks: Kohl’s (KSS)

Current Dividend Yield: 3.8%

Next up is discount retailer Kohl’s, a former high-flyer that has come back down to earth. Kohl’s stock is down about 40% from its 52-week highs.

Kohl’s trades for just 0.50 times sales and at a Shiller P/E ratio of 12. Both of these figures put Kohl’s stock at steep discounts to both its own history and to its department store peers.

Meanwhile, the “boots on the ground” picture is far less bad than the stock-price collapse would suggest. Revenues, both in absolute terms and per-share terms, are growing, if somewhat slowly. Is Kohl’s a glamourous department store? Absolutely not. But its business is stable, and the stores remain popular among budget-minded consumers.

At current prices, Kohl’s stock yields about 3.8% in dividends, and the dividend payout ratio is a very healthy 44%. So Kohl’s dividend cannot be said to be at risk anytime soon.

It’s also worth noting that over the past three years, Kohl’s stock has raised its dividend at a 16% annual clip and bought back 9% of its shares.


Quality Retail Stocks: Gap (GPS)

Current Dividend Yield: 3.4%

And finally, we get to Gap, the owner of Gap, Banana Republic and Old Navy stores, among others. Gap has been perceived as a tired brand for years, yet revenue growth has actually been decent enough. Over the past five years, Gap stock has grown its revenues at a 13.6% clip.

Yet none of this has prevented the stock from sliding more than a third from its 52-week highs.

While not quite as cheap as the other stocks I mentioned, Gap is far from expensive. It trades for 0.7 times sales and at a Shiller P/E ratio of 14.1.

Gap stock pays a nice 3.4% dividend at current prices, and the company has been raising that dividend at a 25% clip over the past three years. And with a dividend payout ratio of just 34%, I would expect more dividend growth to come.

It’s still really ugly in the retail stocks space, and I don’t expect to see a lot of good news this year once Black Friday results come in. But for income investors who are willing to be patient, there are definitely some bargains to be found here.

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog. As of this writing, he was long AAPL and MSFT. To read more of his work, CLICK HERE NOW.

Disclaimers: If I mention a stock favorably, you should assume that I have a position in it, both personally and in client accounts.  This does not, however, automatically mean that you should own it. I am expressing my opinions in this newsletter, not offering individualized financial advice or soliciting you to buy securities.  See full disclaimer here.