Relative Strength Alert For The Gap

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NS dividend rank on the formula dividend channel There are thousands of dividend stocks, according to a proprietary formula designed to identify stocks that have two important characteristics — strong fundamentals and a valuation that looks cheap. A coverage ranks the universe. Gap currently has an excellent rank in the top 25% of the coverage universe, suggesting that it is one of the top most “interesting” ideas worthy of further research by investors.

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Begin the slideshow: 10 Oversold Dividend Stocks »

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But what makes The Gap an even more interesting and timely stock to watch is the fact that in trading Wednesday, GPS shares entered oversold territory, changing hands as low as $18 per share. We define oversold areas using the Relative Strength Index or RSI, a technical analysis indicator used to measure momentum on a scale of zero to 100. If the RSI reading falls below 30, the stock is considered oversold.

In the case of Gap, the RSI reading reaches 27.0 – by comparison, covered by the universe of dividend stocks. dividend channel The average RSI is currently at 51.8. The falling stock price — all else being equal — creates a better opportunity for dividend investors to earn a higher yield. In fact, GPS’s recent annual dividend of 0.48/share (currently paid in quarterly installments) works out to an annualized yield of 2.04% based on its recent 23.51 share price.

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A bullish investor may look at the GPS’s 27.0 RSI reading today as an indication that the recent heavy selloff is in the process of ending itself, and start looking for entry point opportunities on the buy side. Among the fundamental datapoints dividend investors should check to decide whether they are bullish on the GPS is its dividend history. In general, dividends are not always predictable; But, looking at the history chart below can help decide whether the most recent dividend is likely to continue.

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