uploads/2017/10/LB-S-EPS-1.png

What Has Affected L Brands’ Dividend Growth?

By

Updated

L Brands’ net sales and EPS growth

L Brands’ (LB) net sales grew 6% in 2015 against 4% in 2016. The growth was driven by Victoria’s Secret, Bath & Body Works, and Victoria’s Secret & Bath & Body Works International. The weakness in sales was due to a decline in Victoria’s Secret’s comparable sales. Gross profit jumped 8% in 2015 before falling 2% in 2016, which was due to the weakness in net sales and higher cost of sales. SG&A (selling, general, and administrative) expense has risen over the years. As a result, operating income saw 12% growth in 2015 before slipping 9% in 2016. The company’s 2015 EPS jumped 21% before slipping 6%. Interest expense recorded an increase during the period. Share buybacks have enhanced the EPS numbers, especially in 2016.

Article continues below advertisement

Net sales slumped 6% in 1H17 mainly due to weakness in Victoria Secret’s comparable sales. Gross profit fell 10.4%, offset by lower cost of sales. Operating income slumped 30.3% as SG&A remained flat. Overall, the company’s EPS fell 42%. The EPS was also impacted by slightly higher interest expense offset by share buybacks.

L Brands’ dividend yield

The company’s increasing dividend yield has been the main reason behind the falling prices compared to the growth in dividend per share. Dividend per share remained flat in 2016 and 2017. The company’s present share price is half of its 2014 price. The company doesn’t always generate enough free cash flow to pay off its dividends.

L Brands has a dividend yield of 5.5% and a YTD price loss of 33.6%. 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 price gains of 23.2% on a YTD basis.

The iShares Select Dividend ETF (DVY) is a dividend ETF with exposure to L Brands. It has a dividend yield of 3% and a PE of 20.3x. The First Trust Morningstar Dividend Leaders (FDL) is a dividend ETF with exposure to L Brands. It has a dividend yield of 3.2% and a PE of 19.9x.

Advertisement

More From Market Realist