Last update on 2024-06-27

Best Buy (BBY) - Dividend Analysis (Final Score: 7/8)

Best Buy (BBY) dividend yield and growth with a high, stable payout ratio, solid earnings and cash flow coverage. A reliable dividend investment opportunity.

Short Analysis - Dividend Score: 7

We're running Best Buy (BBY) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Best Buy (BBY) has been analyzed based on 8 criteria for its dividend policy. The company scored 7 out of 8, indicating strong performance. Here's a quick summary of each criterion: 1. Dividend Yield: Best Buy offers a generous yield at 4.7011%, much higher than the industry average of 1.21%. 2. Average Annual Growth Rate: Despite some volatility, Best Buy's dividend growth has averaged above 5%, showcasing a robust financial position. 3. Average Annual Payout Ratio: The average payout ratio over 20 years is 29.25%, well below the 65% threshold, implying solid earnings retention. 4. Dividend Coverage by Earnings: Coverage has varied but improved significantly since 2015, reflecting better financial health. 5. Coverage by Cash Flow: Historically inconsistent, but recent improvements suggest a positive trend. 6. Dividend Stability: Generally stable with minor acceptable drops. 7. Dividend History: Has paid dividends consistently for the past 20 years but hasn’t met the 25-year mark yet. 8. Stock Repurchases: Demonstrated reliable stock repurchase over 20 years, indicating good capital management.

Insights for Value Investors Seeking Stable Income

Based on these analyses, Best Buy (BBY) appears to be a strong candidate for dividend investors. Its high yield, robust growth rate, conservative payout ratio, and stable dividends make it attractive. However, the historical inconsistencies in dividend coverage by cash flow suggest monitoring. Despite not having met a 25-year dividend payment history, the upward trend in other criteria bodes well for potential and existing investors. Therefore, Best Buy could be a worthwhile stock to consider for income generation and long-term value appreciation.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield represents the dividend per share annualized as a percentage of the stock price.

Best Buy (BBY) boasts a current dividend yield of 4.7011%, significantly higher than the industry average of 1.21%. This marked difference indicates that Best Buy offers a more attractive income stream for dividend investors compared to its industry peers. Over the past two decades, Best Buy's dividend yield has displayed substantial volatility, peaking at 5.5696% in 2012. This volatility correlates with major price movements observed in the stock's closing prices, such as the steep drop to $11.85 in 2012 from $39.46 in 2009. Despite this, the recent uptick in dividend yield suggests an improving trend. Since 2018, Best Buy has consistently maintained a dividend yield above 2%, surpassing industry averages. Additionally, the steady increase in dividends per share from $0.2 in 2003 to $3.68 in 2023 signals robust financial health and commitment to returning value to shareholders. On balance, the trend of Best Buy’s dividend yield is a positive indicator for potential investors focused on dividends.

Average annual Growth Rate higher than 5% in the last 20 years?

A consistent dividend growth rate exceeding 5% over the last 20 years would indicate a company's robust financial position and its ability to reward shareholders. This is an essential aspect when analyzing a company's commitment to returning value to shareholders.

The analysis of Best Buy's Dividend Growth Rate from 2003 to 2023, as indicated by the Dividend Ratio's yearly values, shows a certain level of volatility. While the Average Dividend Ratio over this period is approximately 17.39%, a closer look reveals fluctuations, including negative growth years (e.g., -8.3333% in 2007 and -17.1429% in 2010). Impressively, the growth rates have mostly been positive, e.g., 98.6111% in 2015 and 60.6061% in 2008. Despite this volatility, the dividend growth rate being higher than 5% on average is a good indication overall but raises questions about consistency and potential risk factors.

Average annual Payout Ratio lower than 65% in the last 20 years?

The Payout Ratio is the proportion of earnings paid out as dividends to shareholders, indicating how well earnings support the dividend payment.

Best Buy's average payout ratio over the last 20 years stands at approximately 29.25%, significantly below the 65% threshold. This suggests that Best Buy maintains a conservative approach in distributing its earnings as dividends. However, note the unusually high payout ratio of 98.38% in 2003 and the negative ratios in 2012 and 2013, indicating a potential instability or dividend policy changes. Overall, the trend is good for sustainability and financial health, as the lower average ratio implies a greater earnings retention for growth and stability.

Dividends Well Covered by Earnings?

Dividends are well covered by earnings when the Earnings per Share (EPS) is sufficiently higher than the Dividend per Share (DPS). This indicates the company's ability to not only pay out consistent dividends but also reinvest in growth or maintain financial stability.

Examining the data for Best Buy (BBY), the percentage of dividends covered by earnings ranges significantly over the years. Notably, in years like 2003 and 2004, the coverage was almost even with 0.98 and 0.19 respectively, suggesting that dividends were nearly equal to or exceeding earnings which is a red flag for sustainability. However, more recent values like in 2021 and 2022 show improved ratios of 0.354 and 0.58, indicating better coverage. The consistent upward trend from 2015 to 2023 is a positive sign for investors, showing that Best Buy has maintained a responsible balance between dividends and earnings. Though there are fluctuations, the steadiest most recent years reflect stronger financial health and better dividend sustainability.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow refers to the ability of a company to pay out dividends from its free cash flow. A ratio of 1 or higher means that the company generates sufficient free cash flow to cover dividends, whereas a ratio below 1 suggests otherwise.

The free cash flow of Best Buy (BBY) from 2003 to 2023 displays a mixed trend, with significant peaks in 2012 ($2.527 billion), 2019 ($4.844 billion), and 2020 ($4.214 billion). The dividend payout amount has generally increased, reaching $789 million in 2023. However, the dividend coverage ratio was highly variable, hitting a low of -0.0 in 2003 and peaking at approximately 0.883 in 2023. Most years display a coverage below 0.4, especially in 2009 (0.388), 2011 (0.531), and 2012 (0.090), which is a troubling sign. Hence, the trend indicates fluctuating but generally insufficient cash flow coverage for dividends, although recent years suggest improvement. Investors should be cautious but note the upward trend in coverage.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over 20 years where dividends per share did not drop by more than 20% is important for income-seeking investors because it reflects the company's ability to generate consistent earnings and maintain investor confidence.

Over the past 20 years, Best Buy (BBY) has shown relatively stable dividend payouts overall. There was a noticeable drop in the dividends per share from 2005 to 2006 (-5.26%) and from 2015 to 2016 (-9.79%), but these drops were within acceptable bounds and did not exceed the 20% threshold. The company's ability to recover quickly after these minor decreases indicates operational resilience and financial stability. A larger drop by 20% or more would break this pattern of stability, signaling potential issues within the company. Currently, many annual increments suggest a solid performance record, exemplified by significant increases in dividends per share, such as the rise from $1.8 in 2018 to $3.68 in 2023. Overall, given the provided dataset, Best Buy (BBY) has met the stability criterion for dividend payments, making it a potentially reliable choice for income-seeking investors.

Dividends Paid for Over 25 Years?

The criterion requires evaluating whether Best Buy has paid dividends consistently for 25 years or more. This indicates the company's long-term financial stability and commitment to returning value to shareholders.

The data shows that Best Buy began paying dividends in 2003, starting at $0.20 per share. Over the past 20 years, the company has shown a consistent and upward trend in dividend payments. From $0.20 per share in 2003, the dividend per share increased to $3.68 in 2023, demonstrating robust growth. However, it's important to note that Best Buy has only been paying dividends for 20 years, falling short of the 25-year mark required by the criterion. Nonetheless, the aspirational trend showcases the company's strong dividend policy, which is favorable for long-term investors. Additionally, the increasing dividends reflect positive financial health and an assurance of shareholder value return over the medium term.

Reliable Stock Repurchases Over the Past 20 Years?

Analyzing stock repurchases is vital as it shows a company's commitment to returning value to shareholders and can also be an indicator of management's confidence in the firm's future prospects.

Over the past 20 years, Best Buy (BBY) has demonstrated a reliable pattern of stock repurchases. From the given data, there is a clear downward trend in the number of shares from 2003 to 2023, decreasing from 486.96 million shares to 224.8 million shares. This trend reflects a significant reduction in shares outstanding, averaged at -3.693% per year. Notable years with increased share buybacks include 2007, 2008, 2009, 2011, 2012, 2013, 2016, 2017, 2018, 2019, 2020, 2021, 2022, and 2023. This consistent reduction indicates strong, proactive financial management aimed at maximizing shareholder value. The average repurchase rate of -3.693% per year over two decades suggests a healthy approach to capital allocation, signaling a positive trend for investors looking for long-term stability and potential appreciation in share value.