Best Buy (BBY) is a Top Dividend Stock Right Now: Should You Buy?
Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Best Buy in Focus
Headquartered in Richfield, Best Buy (BBY) is a Retail-Wholesale stock that has seen a price change of -1.93% so far this year. The consumer electronics retailer is currently shelling out a dividend of $0.45 per share, with a dividend yield of 2.68%. This compares to the Retail - Consumer Electronics industry's yield of 0.12% and the S&P 500's yield of 1.92%.
Looking at dividend growth, the company's current annualized dividend of $1.80 is up 32.4% from last year. Best Buy has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 23.15%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Best Buy's current payout ratio is 37%, meaning it paid out 37% of its trailing 12-month EPS as dividend.
BBY is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $5.10 per share, with earnings expected to increase 15.38% from the year ago period.
Bottom Line
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that BBY is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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