A young stock can bring zest to an income investor's portfolio
and also offer the potential for dividend growth.
GNC Holdings (
) 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
The stock is in a second-stage base with a 54.79 buy
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.