GNC Has Profile Associated With Dividend Increases


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A young stock can bring zest to an income investor's portfolio and also offer the potential for dividend growth.

GNC Holdings ( GNC ) began trading on the NYSE in April 2011. The nutrition store chain, incorporated in 2003, initiated a quarterly dividend of 11 cents a share in March 2012. The payout was increased by more than a third to 15 cents a share in March 2013.

The hefty increase was a good sign. Sometimes a company that is new to paying dividends will deliver sharp increases early in their history as a dividend stock.

While the current annualized dividend yield is only 1.1%, additional increases are possible, given the company's strong earnings and operating cash flow.

The annualized dividend of 60 cents a share represents 19% of last year's cash flow per share and 21% of estimated EPS for 2013. Continued strength in those yardsticks will give GNC the elbowroom to raise the dividend.

GNC's three-year growth rates are 53% for earnings and 14% for revenue. However, the Street expects EPS growth to slow to 23% and 20% respectively in 2013-14. Revenue in the same periods is expected to come in 10% and 9% higher.

The Earnings Stability Factor has improved. The five-year number is 50, but the three-year is 6. The gauge runs from 0 (calm) to 99 (wild). Pretax margin was about 16% last year, the best in the company's history. Return on equity, a measure of financial efficiency, was 26%, also a historical high.

In the past nine months, fund holdings in GNC increased from 480 funds holding 61.2 million shares to 544 holding 73 million shares. Quality holders include Fidelity Contrafund and Columbia Acorn Fund.

The stock is in a second-stage base with a 54.79 buy point.

GNC's beta rating is 0.88, which means it has been less volatile than the market. This could make it easier for income investors to hold shares.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas

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