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Reason for Nordstrom’s Upward Sloping Dividend Yield Curve

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Revenue and EPS performance

Nordstrom (JWN) recorded a 2.2% rise in revenue in 2016 compared to a 7.0% growth in 2015. The growth was driven by the retail segment, which slowed down in 2016. The credit segment is negligible compared to retail, with a 4.0% growth in the first half of 2017, driven by the retail segment.

The company’s 2016 EPS (earnings per share) fell 36.0% due to slower revenue growth, higher costs and expenses, and a goodwill impairment. EPS for 2015 fell 15.3% due to higher costs and expenses. The 10.0% growth in the first half of 2017 was driven by revenue growth and offset by higher costs and expenses, including interest. Interest expenses rose in the first half of 2017 after falling in 2015 and 2016. Share buybacks enhanced EPS. The company generates enough free cash flow to pay its dividends.

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Dividend trajectory

Nordstrom hasn’t changed its dividend per share since 2015. As a result, the upward slope of the dividend yield has been mainly due to price loss.

Nordstrom has a dividend yield of 3.3%, and its prices have fallen 9.2% on a YTD (year-to-date) basis. That compares to a dividend yield of 2.3% and a YTD price gain of 15.2% for the Dow Jones Industrial Average (DJIA-INDEX) (DIA). The S&P 500 (SPX-INDEX) (SPY) has a dividend yield of 2.3% and a YTD price gain of 13.6%. The Nasdaq Composite (COMP-INDEX) (ONEQ) has a YTD price gain of 22.2%.

The First Trust Morningstar Dividend Leaders ETF (FDL) is a dividend ETF with exposure to Nordstrom. The ETF offers a 3.2% dividend yield and has a PE (price-to-earnings) ratio of 19.9x. The WisdomTree US Dividend Growth ETF (DGRW) is a dividend ETF with exposure to Nordstrom. The ETF offers a 2.9% dividend yield and has a PE ratio of 20.3x.

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