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The Gap, Inc. (NYSE:GPS) is a true Dividend Rock Star. Its yield of 5.3% makes it one of the market's top dividend payer. In the past ten years, Gap has also grown its dividend from $0.34 to $0.97. Below, I have outlined more attractive dividend aspects for Gap for income investors who may be interested in new dividend stocks for their portfolio.
What Is A Dividend Rock Star?
It is a stock that pays a reliable and steady dividend over the past decade, at a rate that is competitive relative to the other dividend-paying companies on the market. More specifically:
- It is paying an annual yield above 75% of dividend payers
- It has paid dividend every year without dramatically reducing payout in the past
- Its has increased its dividend per share amount over the past
- It is able to pay the current rate of dividends from its earnings
- It has the ability to keep paying its dividends going forward
High Yield And Dependable
Gap's dividend yield stands at 5.3%, which is high for Specialty Retail stocks. But the real reason Gap stands out is because it has a high chance of being able to continue to pay dividend at this level for years to come, something that is quite desirable if you are looking to create a portfolio that generates a steady stream of income.
Reliability is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. GPS 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. This is an impressive feat, which makes GPS a true dividend rockstar.
The company currently pays out 35% 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 increase to 47% of its earnings. Assuming a constant share price, this equates to a dividend yield of 5.5%. However, EPS is forecasted to fall to $2.2 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Investors of Gap can continue to expect strong dividends from the stock. With its favorable dividend characteristics, if high income generation is still the goal for your portfolio, then Gap is one worth keeping around. However, given this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three fundamental aspects you should further research:
- 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 strong dividend payers with better fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.