Best Buy dividend history is long… but is the dividend safe going forward?
Some of the world’s best investors stick to dividend stocks. They find the top dividend payers that keep returning value to their shareholders. Let’s take a look at the dividend trends with Best Buy.
Business Overview and Highlights
Best Buy is a $20 billion business. The company is based out of Richfield, MN and employs 125,000 people. Last year, Best Buy pulled in $42 billion in sales, which works out to $337,000 per employee.
The company does business within the consumer sector. It also holds a solid credit rating of BBB from the S&P. This allows Best Buy to issue relatively cheap debt to expand operations and pay dividends.
One recent acquisition was GreatCall for $800 million. It’s in line with Best Buy’s 2020 strategy to grow within the health space. The aging population is a lucrative market. This push might provide new cash flow to support Best Buy’s dividend payouts.
Best Buy Dividend 10-Year History
The company paid investors $0.54 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.36. That’s a 152% increase! You can see the annual changes below.
The compound annual growth is 9.7% over 10 years… but over the last year, the dividend sank 13.4%. The slowdown in dividend growth isn’t a great sign. However, Best Buy still might be a good income investment. Let’s take a look at the yield.
Current Yield vs. 10-Year Average
Best Buy’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The Best Buy dividend yield comes in at 2.5%, which is below the 10-year average of 2.82%. The chart below shows the dividend yield over the last 10 years.
The yield is on the lower end, which might not be a good entry point for new investors. Investors are concerned that Best Buy will see sales drop as more established online retailers take over. Let’s take a look at past dividend payout data.
Improved Dividend Safety Check
Many investors look at payout ratio to determine dividend safety. To do this, they look at the dividend per share divided by the net income per share. So a payout ratio of 60% would mean that for every $1 Best Buy earns, it pays investors $0.60.
Payout ratio is a good indicator of dividend safety… but accountants manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s Best Buy payout ratio based on free cash flow over the last 10 years.
The ratio is volatile over the last 10 years, and the trend is down. The last reported year shows a payout ratio of 28.1%. This gives plenty of room for Best Buy’s board of directors to increase the dividend.
Closing Thoughts on Best Buy’s Dividend History
Best Buy is producing solid cash flow to cover and continue raising its dividend. However, the yield is close to a 10-year historical low. There are better opportunities in the market right now. To uncover better stocks, check out some of our top dividend investing research.
Good investing,
Rob
