Yahoo Finance Why The Gap Inc (NYSE:GPS) Is A Dividend Rockstar
The Gap Inc (NYSE:GPS) has pleased shareholders over the past 10 years, by paying out dividends. The company is currently worth US$11.0b, and now yields roughly 3.6%. Does Gap tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
See our latest analysis for Gap
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
Is it the top 25% annual dividend yield payer?
Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
Has dividend per share amount increased over the past?
Does earnings amply cover its dividend payments?
Will it be able to continue to payout at the current rate in the future?
Does Gap pass our checks?
The company currently pays out 41% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect GPS’s payout to remain around the same level at 38% of its earnings, which leads to a dividend yield of around 3.6%. Moreover, EPS should increase to $2.65.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. In the case of GPS it has increased its DPS from $0.34 to $0.97 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Relative to peers, Gap generates a yield of 3.6%, which is high for Specialty Retail stocks.
Next Steps:
Considering the dividend attributes we analyzed above, Gap is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three pertinent factors you should look at:
Future Outlook: What are well-informed industry analysts predicting for GPS’s future growth? Take a look at our free research report of analyst consensus for GPS’s outlook.
Valuation: What is GPS worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether GPS is currently mispriced by the market.
Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
