Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Best Buy in Focus
Best Buy (BBY) is headquartered in Richfield, and is in the Retail-Wholesale sector. The stock has seen a price change of 5.96% since the start of the year. The consumer electronics retailer is paying out a dividend of $0.45 per share at the moment, with a dividend yield of 2.48% compared to the Retail - Consumer Electronics industry's yield of 0.11% and the S&P 500's yield of 1.82%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.80 is up 32.4% from last year. Over the last 5 years, Best Buy has increased its dividend 5 times on a year-over-year basis for an average annual increase of 21.62%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Best Buy's payout ratio is 37%, which means it paid out 37% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BBY for this fiscal year. The Zacks Consensus Estimate for 2018 is $5.11 per share, with earnings expected to increase 15.61% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. With that in mind, BBY presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.