Yahoo Finance Is It Smart To Buy Best Buy Co., Inc. (NYSE:BBY) Before It Goes Ex-Dividend?
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Best Buy Co., Inc. (NYSE:BBY) is about to go ex-dividend in just 4 days. You can purchase shares before the 18th of March in order to receive the dividend, which the company will pay on the 9th of April.
Best Buy's upcoming dividend is US$0.55 a share, following on from the last 12 months, when the company distributed a total of US$2.20 per share to shareholders. Last year's total dividend payments show that Best Buy has a trailing yield of 4.0% on the current share price of $55.4. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Best Buy can afford its dividend, and if the dividend could grow.
See our latest analysis for Best Buy
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Best Buy paying out a modest 35% of its earnings. A useful secondary check can be to evaluate whether Best Buy generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 29% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Best Buy's earnings per share have been growing at 10% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Best Buy has delivered 15% dividend growth per year on average over the past ten years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Final Takeaway
From a dividend perspective, should investors buy or avoid Best Buy? Best Buy has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.
On that note, you'll want to research what risks Best Buy is facing. To help with this, we've discovered 1 warning sign for Best Buy that you should be aware of before investing in their shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
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. Thank you for reading.
