The Gap, Inc. (NYSE:GPS) Should Be In Your Dividend Portfolio, Here's Why

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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.

Check out our latest analysis for Gap

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:

• Its annual yield is among the top 25% of dividend payers
• It has paid dividend every year without dramatically reducing payout in the past
• Its dividend per share amount has increased over the past
• It is able to pay the current rate of dividends from its earnings
• It is able to continue to payout at the current rate in the future

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. It has also been paying out dividend consistently during this time, as you'd expect for a company increasing its dividend levels. This is an impressive feat, which makes GPS a true dividend rockstar.

The current trailing twelve-month payout ratio for the stock is 35%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 47% which, assuming the share price stays the same, leads to a dividend yield of around 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 thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

Next Steps:

There aren't many other stocks out there with the same track record as Gap, so I would certainly recommend further examining the stock if its dividend characteristics appeal to you. However, given 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. Below, I've compiled three relevant factors you should look at:

1. 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.
2. 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.
3. 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 editorial-team@simplywallst.com. 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.