Best Buy Co.,Inc. (
) has been increasing their dividend payouts for the last three
years, but with weakening earnings and declining cash flow, will
BBY be able to continue its dividend trend?
With the holidays right around the corner, electronics retailer
Best Buy reported yet another disappointing quarter on Tuesday. The
company reported a third quarter loss of $10 million, or -3 cents
per share. Last year, BBY reported earnings of $156 million, or 42
cents per share. Adjusted net income came in at 3 cents per share,
nowhere close to analysts' 12 cent expectation.
Third quarter revenue came in at $10.75 billion, declining 4%
from last year's revenue of $11.15 billion, but narrowly beating
analysts estimates of $10.73 billion.
Tough Product Mix
As the company reconstructs its organization under new CEO
Hubert Joly, BBY sees even more pressures from weak product cycle
in electronics, increased competition, and higher costs.
Best Buy has had trouble with product life cycles, and not being
able to adapt to them in a retail atmosphere. They are also unable
to compete with online retailers like Amazon (
) with its current business model. Additionally, BBY has been faced
with increased selling and administrative costs, making it even
harder to compete.
The company has seen an increase in demand for products
including mobile phones, appliances, and tablets. However, the
number of consumers purchasing notebook computers, gaming products,
and TV's has been rapidly declining.
In store sales for the quarter declined by 4.7%, but online
sales increased 10%. Although BBY has been seeing major declines in
many segments, they saw a 32% increase in mobile phone sales.
A Troubling Share Price Trend
The stock is currently down 48% from this time last year, and
down 74% from five years ago. From the company's 2013 guidance, it
does not look like the stock will do much increasing anytime soon.
BBY originally predicted their fiscal 2013 free cash flow to be in
the range of $1.25 billion to $1.5 billion. This estimate has since
been lowered to a range of $850 million to $1.05 billion.
With all of this decline, it is making some investors wonder:
with a dividend yield now around 5%, is BBY's dividend payout in
Dividend Not Built to Last
Despite falling profit, and issues with its business model, BBY
has increased their dividend for three straight years. Although as
of now, there is no way to know for sure if or when BBY's dividend
will be cut, it is possible that with the company's fourth quarter
earnings report, there may be a potential cut in dividend
It is hard to determine just how much the possible dividend cut
could be. Although BBY still generates enough cash to cover its
dividend obligations, its sales have been falling for years, and
they may not be able to afford a high dividend yield much
White Knight Potential
Best Buy founder and former CEO Richard Schulze attempted to buy
out BBY for a price of $8.8 billion in August. During this
attempted acquisition, Schulze offered to pay shareholders $24 to
$26 per share for their owned shares. Thankfully for his sake, the
company rebuffed his offer - the shares are now trading around
Given the stock's big pullback, it's possible Schulze could
attempt another takeover of Best Buy. If BBY were taken private,
some shareholders would get lucky with a buyout (depending of
course on the takeover price and the level they bough in at).
However, BBY should not be considered a worthy dividend
The Bottom Line
Best Buy's stock has been declining for years, and is unable to
keep up with the ever-changing electronics industry. Although it is
not certain, there is only a minimal chance that this company will
recover anytime in the near future. It is possible that
shareholders could get lucky if the company is bought out, but the
company should not be considered a good dividend investment. It is
very possible that dividends could be cut in the next quarter - or
next year at the latest.
Best Buy Co., Inc.(
) is not recommended at this time, holding a Dividend.com DARS™
Rating of 2.9 out of 5 stars.
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, as well as a detailed explanation of
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