Why L Brands, Inc. (NYSE:LB) Is A Top Dividend Stock
There is a lot to be liked about L Brands, Inc. (NYSE:LB) as an income stock. It has paid dividends over the past 10 years. The company is currently worth US$7.6b, and now yields roughly 8.5%. Does L Brands tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
View our latest analysis for L Brands
5 checks you should use to assess a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
Is it the top 25% annual dividend yield payer?
Has it paid dividend every year without dramatically reducing payout in the past?
Has it increased its dividend per share amount over the past?
Is is able to pay the current rate of dividends from its earnings?
Will the company be able to keep paying dividend based on the future earnings growth?
Does L Brands pass our checks?
The current trailing twelve-month payout ratio for the stock is 87%, which means that the dividend is covered by earnings. However, going forward, analysts expect LB’s payout to fall to 55% of its earnings. Assuming a constant share price, this equates to a dividend yield of 5.8%. Moreover, EPS is also forecasted to fall to $2.62 in the upcoming year. The lower EPS on top of a lower payout ratio will lead to a fall in dividend payment moving forward.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. 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. Although LB’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Compared to its peers, L Brands generates a yield of 8.5%, which is high for Specialty Retail stocks.
Next Steps:
Taking into account the dividend metrics, L Brands ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three relevant aspects you should look at:
Future Outlook: What are well-informed industry analysts predicting for LB’s future growth? Take a look at our free research report of analyst consensus for LB’s outlook.
Valuation: What is LB 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 LB 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.
