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How Does Big Lots, Inc. (NYSE:BIG) Fare As A Dividend Stock?

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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Big Lots, Inc. (NYSE:BIG) has been paying a dividend to shareholders. Today it yields 3.8%. Does Big Lots tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for Big Lots

5 questions I ask before picking a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

  • Is their annual yield among the top 25% of dividend payers?

  • Does it consistently pay out dividends without missing a payment of significantly cutting payout?

  • Has it increased its dividend per share amount over the past?

  • Does earnings amply cover its dividend payments?

  • Will the company be able to keep paying dividend based on the future earnings growth?

NYSE:BIG Historical Dividend Yield, February 22nd 2019
NYSE:BIG Historical Dividend Yield, February 22nd 2019

How well does Big Lots fit our criteria?

Big Lots has a trailing twelve-month payout ratio of 31%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 37% which, assuming the share price stays the same, leads to a dividend yield of 4.3%. However, EPS is forecasted to fall to $3.67 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Unfortunately, it is really too early to view Big Lots as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Compared to its peers, Big Lots generates a yield of 3.8%, which is high for Multiline Retail stocks.

Next Steps:

With this in mind, I definitely rank Big Lots as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three fundamental factors you should look at:

  1. Future Outlook: What are well-informed industry analysts predicting for BIG’s future growth? Take a look at our free research report of analyst consensus for BIG’s outlook.

  2. Valuation: What is BIG 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 BIG is currently mispriced by the market.

  3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.

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