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Summary

  • For each S&P 500 industry sector, I will be taking a look at available companies to help determine the best stocks for income investors.
  • In determining the best stocks per industry, I will be examining both the dividend growth and dividend yields of the stocks.
  • I believe L Brands is the top stock choice out of this group of Apparel Retail stocks for long-term income investors.

Overview

In this series of articles, I will be identifying which stocks for various S&P industries are best suitable for income investors, based on dividend growth and yield. For Part 12, I will be taking a look at Apparel Retail stocks. These stocks include:

  • Gap (NYSE:GPS)
  • L Brands (NYSE:LB)
  • Ross Stores (NASDAQ:ROST)
  • TJX Companies (NYSE:TJX)
  • Urban Outfitters (NASDAQ:URBN)

Urban Outfitters currently does not pay a dividend.

When ranking the dividend paying stocks by yield, the order is as follows:

  • L Brands - 2.42%
  • Gap - 2.17%
  • TJX Companies - 1.27%
  • Ross Stores - 1.19%

When ranking them by dividend growth over the past five years, the order is as follows:

  • L Brands - 566.70%
  • Ross Stores - 263.60%
  • TJX Companies - 191.70%
  • Gap - 158.80%

Looking at revenue, you can see that Ross Stores has had the highest growth over the past five years, while Gap has seen the lowest.

LB Revenue (<a href=

LB Revenue (TTM) data by YCharts

In terms of earnings, L Brands has easily seen the highest growth compared to the other stocks, while Gap has seen the lowest.

LB EPS Basic Chart

LB EPS Basic (TTM) data by YCharts

TJX Companies has the highest trailing PE ratio while Gap has the lowest.

LB PE Ratio Chart

LB PE Ratio (TTM) data by YCharts

Each of the companies have low payout ratios, with L Brands having the highest and Ross Stores having the lowest.

LB Payout Ratio Chart

LB Payout Ratio (TTM) data by YCharts

I like each of the four dividend paying stocks in this group for different reasons. I like Gap because it has the second highest dividend yield and the most attractive price based on trailing and forward PE. I like Ross Stores because it has the second highest dividend growth along with the highest revenue growth and second highest earnings growth over the past five years. Not to mention it has the lowest payout ratio of the group. And I even like TJX even though I feel that it is somewhat overvalued at the moment. But the stock I like the best is L Brands.

Conclusion

L Brands has the highest yield as well as the highest dividend growth over the past five years. The company has also seen the highest earnings growth over this time.

Tuesday, L Brands stock has taken a hit, currently down $2.40 (4.14%) as it is set to report earnings Wednesday. I think this presents a perfect buying opportunity as I feel the company will meet or even exceed earnings expectations.

L Brands comparable sales were up 8% in April, which was double what analysts were expecting. The company's recent strategies helped lead it to raise earnings guidance from $0.44-$0.49 to $0.50-$0.52. If the April sales numbers are any indication, the company should be able to achieve these numbers.

With brands that consumers have strong loyalty to, such as Victoria's Secret and Bath & Body Works, the long-term outlook for L Brands remains positive. And when a company posts solid revenue numbers like L Brands reported (a 9% increase in total revenues for April to $717.6 million, versus $660.5 million in 2013), and you have an opportunity to buy on a dip, I recommend taking it. After tomorrow's earnings, the opportunity may no longer be there.

As always, I suggest individual investors perform their own research before making any investment decisions.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: The Best Dividend Growers, Part 12: L Brands