Company Description
Limited Brands, through Victoria's Secret, Bath & Body Works,
Express, Express Men's, Limited Stores, White Barn Candle Co. and
Henri Bendel, presently operates 3,828 specialty stores.
Victoria's Secret products are also available through the
catalogue and http://www.VictoriasSecret.com .
(Source: Company Press Release)
[Source: Company Press Release]
Reasons to Invest:
Flu season is officially here and I have been lucky enough to
catch the bug (Sarcastic Grin). Needless to say, I was too sick
to write a DRIP last week, let alone update the Portfolio. After
a few weeks on the sideline, I am as ready as ever to find yet
another profitable pick for the DripAdvisor.com Portfolio. Thank
God for the miracles of modern medicine, I feel a thousand
percent better and believe that I have found the perfect DRIP
that resembles my recovery. Okay, okay, maybe this week's Drip
of the Week won't gain a thousand percent, but lets shoot for ten
percent year over year, and we'll call any gains over the
benchmark ten percent level, "the cherry on top."
Open up wide and say "awe." It looks like this Week's Drip of
the Week is witnessing some inflammation in its 1st & 2nd quarter
earnings. I don't know about you, but if their books look
inflamed then I believe that our wallets should too. Limited
Brands Inc (NYSE:LTD) saw their sales rise by 9 percent to $4.19
billion, and their net income increase by a margin of 23 percent
to $244.6 million.
Victoria's Secret, Express, Bath & Body Works, Henri Bendel, and
apparel importer Mast Industries (to name a few) are all owned by
Limited Brands. LTD trades for 17 times its expected full-year
earnings (Jan. 2005) of $1.35 per share. LTD's operating
momentum is through the roof, and their 2.03 percent dividend
yield is 20 percent higher than the 1.7% yield for the run of the
mill stock in the S&P 500.
Something that is far too impressive to ignore is the fact that
LTD just announced a stock buyback program of $2 billion, which
is nearly 20 percent of its shares outstanding. By instating the
stock buyback program, management is not only showing their
confidence in their product(s), but they are also reducing the
number of shares outstanding, which boosts earnings per share,
and increases profitability for the company.
On a post-buyback basis, Limited Brands intends to pay a special
$500 million cash dividend, which bodes well for those that are
invested in its shares. This past Tuesday, LTD sold one billion
in ten year notes paying a 5.25% coupon. Proceeds from the sell
are going towards funding for the two billion stock buyback and
the $500 million special dividend (that will be paid after the
buyback occurs). The next 12-18 months look attractive to me,
because I believe this is the period of time that we will see the
most appreciation in LTD's stock.
The one-year earnings per share growth rate on LTD is 43.47
percent, while the one year dividend percentage growth rate is
33.33 percent. These percentages are among the highest
percentages I have seen in terms of one-year growth rates. As
dividend investors, the ideal scenario is to see the earnings per
share growth rate just overtop of the dividend growth rate.
Generally speaking if the EPS is growing faster than the dividend
percentage, the dividend percentage is likely to grow as well,
which means that we are most likely going to see our quarterly
dividend payout increase in the near future. Since the EPS is
also growing faster than the estimated one-year sales growth rate
(5.79 percent), this usually means that costs are being
effectively controlled.
Limited Brands daily chart looks nothing shy of phenomenal,
especially since the stock has gained more than 13 points since
late February of last year. The stock has glided through a 20-
month regression channel with vigor, testing the bottom/top
support/resistance bars along the way. I note that the MACD and
Stochastics indicators are both on buy signals. However, the
stock is currently testing the top bar of its channel and this
means that a pullback is most likely going to occur in the next
few weeks. After all, LTD has tacked on five points in the past
three months, with far more winning days than losing days.
In fact, if you know how to trade options, speculation tells me
that LTD would be an ideal short, or bearish opportunity. I
could see a pullback to the 22.70 range, which was the low on
October 8th, and the lowest the stock has traded since gaping
higher on October 7th. The only reason I am saying this is
because I believe that if you hold out on buying LTD for a week
or so, you may be able to buy your initial share at a lower
premium.
Okay, back to my longer-term perspective. Fifteen of the past
twenty-four months have closed higher, and the weekly chart shows
the same channel as the daily chart. What's even more impressive
is the fact that LTD's stock hasn't closed below any of its
underlying moving averages (on the monthly chart) since October
of last year. While there have been four losing months since
last October, the stock has really maintained its gains, and/or
picked up momentum along the way. The monthly MACD and
Stochastics indicators are both on buy signals and in overbought
territory.
LTD has a dividend of $0.48 per share owned per year, which
tallies out to a 2.03 percent annual yield.
While consumer confidence/spending remains a little sideways, I
still believe that playing a stock like LTD is worthwhile. The
holiday season is just around the corner and I know that people
are going to go shopping, regardless of whether or not they have
to put their purchases on a credit card. Men, think about it,
what are you going to get your wives for Christmas? How about
something nice from Victoria's Secret, or some nice bath salts
from Bath & Body Works? If the publics can't help increase your
portfolio profits, why not stand behind the investments you make,
and invest in their products? Make sense? There is nothing
wrong with helping out the companies that you invest in, and
actually it makes more sense to invest in their products when
your retirement, grandkids tuition, and risk capital is in their
hands.
This ends another exciting episode of the DripAdvisor.com Drip of
the Week. Stay tuned next week, as we will spotlight another
stock worthy of the DripAdvisor.com limelight.
Remember:
Plan your trade, and trade your plan.
Until Next Week,
Nich Sheldon
Editor In Chief
www.dripadvisor.com
questions@DripAdvisor.com
Broker Recommendations
Strong Buy 5
Buy 6
Hold 13
Sell 0
Strong Sell 0
Brokers Covering 24
DRIP Information:
Shares to Qualify = 1
Auto-reinvestment = No
Accept Foreign Accounts: No
Temper Enrollment: Yes
Min/Max Investment = $30-$6,000/quarter
Reinvestment Fees -
Dividend investment fees: $0.00
Cash investment fees: $0.00
Auto reinvestment fees: N/A
Transfer Agent:
First Chicago Trust
800-317-4445
Corporate Headquarters:
Three Limited Parkway, P.O. Box 16000
Columbus, OH 43216
Phone: (614) 415-7000
Fax: (614) 415-7094
