The Gap Inc. Grows Dividend 10-Fold Over the Last Decade (GPS)

The Gap Inc. raised its annual dividend more than 10-fold in just over a decade and complemented its rising dividends with a renewed share price growth to reward its investors with extraordinary total returns.

The company currently offers a 2.7% dividend yield and has accompanied that yield with a share price growth of more than 40% over the past 12 months. The company’s next ex-dividend date will be on January 2, 2018, with the pay date at the end of the same month on January 31, 2018.

The Gap Inc. (NYSE:GPS)

Founded in 1969 and headquartered in San Francisco, California, The Gap, Inc. operates as an apparel retail company worldwide. The company provides apparel, accessories and personal care products for men, women and children under the Gap, Banana Republic, Old Navy, Athleta and Intermix brands.

The company’s product assortment includes denim, T-shirts, button-down shirts, khaki pants and other products, as well as fitness and lifestyle products for use in yoga, training and sports for women and girls. Additionally, the company operates a social shopping platform for wedding parties that provides an online boutique with bridesmaid dresses and various wedding party gifts under the Weddington Way name. The Gap offers its products through company-operated stores, franchise stores, websites, third-party arrangements and catalogs. Currently, the company has franchise agreements with unaffiliated franchisees to operate Gap, Banana Republic and Old Navy stores in Asia, Australia, Europe, Latin America, the Middle East and Africa. As of November 2017, the company operated more than 3,200 company stores, nearly 500 franchise stores and several e-commerce sites.

The company’s current $0.23 quarterly dividend translates to a $0.92 annualized distribution and a 2.7% dividend yield. Rising dividends kept pace with the growing share price and ensured that the current dividend yield remains on par with the company’s five-year average yield. Additionally, the company’s current 2.7% yield is 7.7% higher than the 2.5% average yield of all the companies in the Apparel Stores segment and nearly 43% higher than the 1.87% average yield of the entire Services sector.

Over the past 20 years, the company cut its annual dividend payout only once. After that single dividend cut in 2003, the company hiked its dividend for 13 consecutive years. Over that period, the annual dividend distribution rose at an average growth rate of 22.3% per year and grew more than 13-fold over those 13 years.

The company paid the same, flat $0.92 annual distribution over the past two years. However, the current 42% dividend payout ratio is just slightly higher than the 37% payout ratio over the last five years and easily can support rising dividend payouts for the near future, should the company’s management choose to do so.

The company went through a tough time a few years ago and its share price dropped more than 60% between July 2013 and May 2016 when the stock fell below $18 per share. However, since the May 2016 low, the share price has been recovering from its losses, slowly at first and more significantly in the past 12 months.

The company’s share price fell more than 11% between December 19, 2016, and its 52-week low of $21.20 on July 11, 2017. However, since the July 2017 low, the share price rose 62.5% over five months and more than half of that growth occurred in the past 30 days. The share price closed on December 18, 2017, at its new 52-week high of $34.45, which is 44% above the price from one year ago.

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