A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Over the past 2 years, Bed Bath & Beyond Inc (NASDAQ:BBBY) has returned an average of 2.00% per year to shareholders in terms of dividend yield. Should it have a place in your portfolio? Let’s take a look at Bed Bath & Beyond in more detail. Check out our latest analysis for Bed Bath & Beyond
Here’s how I find good dividend stocks
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does Bed Bath & Beyond fare?
Bed Bath & Beyond has a trailing twelve-month payout ratio of 16.24%, which means that the dividend is covered by earnings. Going forward, analysts expect BBBY’s payout to increase to 26.50% of its earnings, which leads to a dividend yield of around 2.75%. However, EPS is forecasted to fall to $2.88 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. The reality is that it is too early to consider Bed Bath & Beyond as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Relative to peers, Bed Bath & Beyond has a yield of 2.61%, which is high for Specialty Retail stocks but still below the market’s top dividend payers.
Taking all the above into account, Bed Bath & Beyond is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three fundamental factors you should further examine:
- 1. Future Outlook: What are well-informed industry analysts predicting for BBBY’s future growth? Take a look at our free research report of analyst consensus for BBBY’s outlook.
- 2. Valuation: What is BBBY worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BBBY is currently mispriced by the market.
- 3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.