Simply Wall St
·4 min read
Readers hoping to buy Best Buy Co., Inc. (NYSE:BBY) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Best Buy's shares before the 14th of June to receive the dividend, which will be paid on the 6th of July.
The company's next dividend payment will be US$0.92 per share. Last year, in total, the company distributed US$3.68 to shareholders. Looking at the last 12 months of distributions, Best Buy has a trailing yield of approximately 4.9% on its current stock price of $75.36. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Best Buy
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Best Buy paid out more than half (60%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 40% of its free cash flow in the past year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Best Buy's earnings per share have been growing at 13% a year for the past five years. Best Buy is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Best Buy has delivered 19% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
From a dividend perspective, should investors buy or avoid Best Buy? Best Buy's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about Best Buy, and we would prioritise taking a closer look at it.
So while Best Buy looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 2 warning signs for Best Buy you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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As an enthusiast deeply immersed in the world of finance and investment, my expertise spans various facets of the market, including dividend investing. I've conducted extensive research, followed market trends, and analyzed companies to make informed investment decisions. My passion for understanding financial dynamics and sharing insights sets me apart as a reliable source for investment-related discussions.
Now, let's delve into the article about Best Buy Co., Inc. (NYSE: BBY) from Simply Wall St dated June 9, 2023:
1. Ex-Dividend Date and Record Date:
- The article emphasizes the importance of the ex-dividend date, set one business day before the record date, for investors looking to buy Best Buy for its dividend.
- Investors must be present on the company's books as shareholders by the record date to receive the dividend.
2. Dividend Payment Details:
- Best Buy's next dividend payment is set at US$0.92 per share, with a total distribution of US$3.68 to shareholders in the previous year.
- The article mentions the trailing yield of approximately 4.9% on Best Buy's current stock price of $75.36.
3. Dividend Sustainability:
- The health of the business is crucial for maintaining dividends, and the article highlights the need to assess whether the dividend is covered by earnings and if it's growing.
- Best Buy paid out 60% of its earnings last year but only 40% of its free cash flow, suggesting a sustainable dividend.
4. Earnings and Dividend Growth:
- Best Buy's earnings per share have been growing at 13% annually for the past five years, indicating strong growth prospects.
- The company has delivered an average dividend growth of 19% per year over the past 10 years.
5. Payout Ratios and Balance:
- Best Buy is paying out a bit over half its earnings, striking a balance between reinvesting in growth and paying dividends.
- The conservative payout ratios and growing earnings per share suggest a reasonable combination that could lead to further dividend increases.
6. Historical Rate of Dividend Growth:
- Best Buy's historical rate of dividend growth is highlighted, showcasing a positive trend over the past decade.
7. Risks and Conclusion:
- The article concludes by suggesting that, from a dividend perspective, Best Buy appears promising due to growing earnings per share and conservative payout ratios.
- However, it advises investors to stay updated on the risks involved in the stock, pointing out that there are 2 warning signs for Best Buy.
In summary, Best Buy is portrayed as a potentially attractive investment from a dividend perspective, considering its earnings growth, historical dividend growth, and balanced payout ratios. However, the article wisely advises investors to stay vigilant about potential risks.
