3. Limited Brands (LTD) has been a top-performing specialty retail stock over the past few years, returning 30%, annualized, since 2008.
Rapidly improving fundamentals have buoyed the stock. Limited's 12-month sales and net income have grown 11% and 79%, respectively. Limited focuses on women's intimate apparel and beauty-care products, owning the Victoria's Secret and Bath & Body Works brands. Fiscal fourth-quarter net income stretched 27% to $452 million, or $1.36 a share, as sales gained 13%. The operating margin rose from 19% to 21%.Despite outstanding performance, Limited still receives positive reviews from stock analysts and is reasonably valued, on a comparative basis. Of researchers evaluating the company, 52% recommend purchasing its shares and the remainder suggest holding them. However, the stock's median price target, at $38.59, suggests limited upside from current levels. Limited's stock sells for a trailing earnings multiple of 16, a forward earnings multiple of 14 and a cash flow multiple of 9.5, representing specialty-retail industry discounts of 16%, 8% and 23%, respectively. Limited pays a regular quarterly dividend of 20 cents, converting to an annual dividend of 2.2%. However, when incorporating special dividends, the stock has a trailing 12-month yield of 9.7%. Incorporating all payouts, the distribution has grown 128% in the past year and 83% and 43% over a three- and five-year span, respectively. Limited declared a special $1 dividend at the end of March 2010, equivalent to a 4% yield on announcement, and a special $3 dividend in December 2010, equal to a 9.4% yield. Management has proven to be exceptionally focused on rewarding shareholders, paying regular quarterly dividends, an annual cash dividend and special dividends, to boot. Although special dividends are contingent upon strong operating results. There are likely more to come.