The Retail Sector (XRT) has always been a challenging one to invest in, but income investors can find attractive returns that build wealth. The takeaway from recent data is that consumer spending remains strong, albeit aided by inflation. Inflation is having an impact on spending habits more than volume, and that is where opportunities lie. The qualities that Walmart (NYSE: WMT), Lowe's (NYSE: LOW), and TJX Companies (NYSE: TJX) have in common include blue-chip status, outperformance, increased market share, reliable dividends and an ability to deliver value consistently, year after year when others can not. Qualities that make great investments in any sector. 

Walmart Is the Leading Player in Consumer Retail

Walmart proved in Q2 that size and scale matter. Walmart is the world's largest retailer and was able to grow, outperform consensus estimates, and take market share from its competitors because of it. The company can put more of what consumers want on the shelves, it's able to shift to categories where consumers are spending their money, and it has the best ties to the supply chain. It also has Sam’s Club to complement the core business, and both are doing well. While Walmart's core business is stealing share from Target (NYSE: TGT), Sam's Club continues to grow membership and comps ex-fuel. 

Target presents a deep value and a high yield for investors that will probably pay off over the long term. The question is when the bottom will be hit, and TGT shares do not appear to be at the bottom now. While investors wait for that event, Walmart is trending higher, pays about 1.45% in yield and is repurchasing shares. The payout isn't attractive from the high-yield viewpoint but aligns with the broad market average and is growing. The company is a Dividend King with a payout ratio of 35% that says annual distribution increases will continue. Share repurchases added about 0.28% to the yield in Q2 and are also expected to continue. 

Lowe's  Company is a Better Buy Than Home Depot 

Lowe's Company trades at a discount to Home Depot (NYSE: HD), which at first glance is surprising. A little digging shows that Home Depot pays out more of its earnings in dividends, which is a primary cause for the divergence in value. Home Depot also yields a little more, about 60 bps, with shares near late-August levels and another cause for divergence in value, but the distribution growth outlook offsets it. 

Home Depot is growing its dividend but has a marred history compared to Lowe's royal pedigree, and it isn't growing the distribution as quickly. Lowe's is running a much higher distribution CAGR than HD and can sustain higher increases for longer, a trend that will help boost the stock valuation over time. Regarding the recent results, Home Depot performed better in Q2 than the analysts' estimates but gave weaker guidance and a cloudier outlook. HD expects a weaker 2nd half, while Lowe's a better one. 

TJX Companies: Off-Price Gives Full Value To Investors 

Walmart is not the only retailer to gain share from Target this season. The off-price retailers, led by TJX Companies, are also taking share. TJX Companies outperformed the consensus estimates in Q2 and grew revenue on strength in home goods and apparel. Those are categories that Target and Walmart lost ground in and are driving strength across the off-price universe. 

Regarding the dividend, TJX doesn't have quite the history of sustained distribution growth you get with WMT and LOW, but it is impressive. Except for 1 year during the peak of the COVID-19 pandemic when the distribution was suspended, TJX has paid a distribution every quarter since May 1999. In the years it paid a dividend, it only ever increased the payment and made regular annual increases. No investor likes to have a distribution cut, but given the circumstances and TJX share price today, it was a good move, and long-term holders are probably happy.