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Why Gap’s Dividend Yield Graph Is Sliding Downwards

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Gap’s net sales and EPS growth

Gap (GPS) recorded a 4% decline in net sales for 2015 compared to 2% in 2016. The improvement was due to its slower decline in comparable sales. Gap Global and Banana Republic Global both saw declines in comparable sales, offset by Old Navy Global. Gross profit fell 9% in 2015 compared to 1.4% in 2016, which was due to improvement in net sales and lower cost of sales. Operating income fell 27% and 22% in 2015 and 2016, respectively. Operating expenses fell slightly in 2015 before picking up in 2016. Overall, the company’s EPS fell 22.3% and 24% in 2015 and 2016, respectively. Interest expense fell in 2015 before rising in 2016. Share buybacks have enhanced the EPS numbers.

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Net sales rose 1% in 1H17 with improvement in comparable sales. Gap Global and Banana Republic Global’s net sales fell, offset by Old Navy Global. Gross profit rose 5% as the cost of sales also fell. Operating income rose 41% as operating expense fell. Overall, the company’s EPS fell 65%. Interest expense also fell during the period. Share buybacks further enhanced the EPS numbers.

Gap’s dividend yield

Gap’s dividend yield fell in 2017 after rising in the previous years, which was due to the constant dividend between 2015 and 2017, offset by falling prices. Share prices have fallen 36% compared to 2014. The company has maintained a good free cash flow balance.

Gap has a dividend yield of 3.4% and a YTD price gain of 20.1%. Let’s compare that with the broad indexes. The Dow Jones Industrial Average (DJIA-INDEX) (DIA) has recorded a dividend yield of 2.3% and price gains of 18% on a YTD basis. The S&P 500 (SPX-INDEX) (SPY) has recorded a dividend yield of 2.3% and price gains of 15% on a YTD basis. The NASDAQ Composite (COMP-INDEX) (ONEQ) has recorded YTD price gains of 23.2%.

The SPDR S&P Global Dividend ETF (WDIV) is a dividend ETF with exposure to Gap. It has a dividend yield of 3.4% and a PE of 14.3x. The WisdomTree US High Dividend Fund (DHS) is a dividend ETF with exposure to Gap. It has a dividend yield of 3.1% and a PE of 21x.

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