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Foot Locker to announce dividend increase

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What's Happening

Athletic footwear and apparel retail Foot Locker ( FL ) should announce a dividend increase this week, extending its streak of six annual increases. The stock has been trending lower since early December, and shares are currently down 1.1% on the year.

Technical Analysis

FL was recently trading at $70.92, down $8.51 from its 12-month high and $20.02 above its 12-month low. Overall technical indicators for FL are bearish with a weak downward trend. The stock has recent support above $67.20 and recent resistance below $72.00. Of the 19 analysts who cover the stock, 14 rate it a "strong buy", and five rate it a "hold". The stock receives S&P Capital IQ's 5 STARS "Strong Buy" ranking.

Analyst's Thoughts

FL currently has a dividend yield of 1.55%, and a low payout ratio of just 23.1%. Given the low payout ratio, and the recent bearish sentiment on the stock, I believe the company will opt to boost its dividend again this year, making this the seventh-straight year the company has done so. There is a general unease around the athletic sector at this point, and after years of strong gains, stocks such as Foot Locker, Nike ( NKE ) and Under Armor ( UA ) have begun to cool off. Foot Locker should come out OK, but a lot will be riding on the company's fourth-quarter earnings report on February 24. If the company reports solid numbers, the stock should trend higher, as it is currently trading with a P/E of just 15.2, and has 14 "strong buy" ratings out of 19 total analyst ratings. Shares are trading at $70.92, and analysts have an average price target of $77.95 on the stock, so there is plenty of upside as long as Q4 results do not disappoint. The company will likely announce its next dividend this week, but the stock will not trade ex-dividend until early April, so you will have plenty of time to get into the stock after the upcoming earnings report and still be eligible for the new dividend. Look for the quarterly dividend to rise from $0.275 to around $0.30, for an increase of 9.0%.

Stock Only Trade

Bullish Trade

If you want a bullish hedged trade on the stock, consider a May 57.50/62.50 bull-put credit spread for a 45-cent credit. That's a potential 9.9% return (36.8% annualized*) and the stock would have to fall 11.2% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider a May 80/85 bear-call credit spread for a 30-cent credit. That's a potential 6.4% return (23.7% annualized*) and the stock would have to rise 13.2% to cause a problem.

Covered Call Trade

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

Originally published on InvestorsObserver.com


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

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