Why You Should Consider Buying Best Buy And Its 2.5% Dividend
Over the last couple months, I’ve shown you stocks to avoid…
Stocks to consider buying…
And some of the best stocks related to the coming Internet of Things… Which you can find linked further below.
All these recommendations are to help you either avoid pain and terrible stocks. Or to help you find potentially great stocks to invest in during this pandemic.
If you do both well, it helps you earn higher than average investment returns and build wealth.
Because the fewer investment losses you have the more capital you keep. And the more capital you keep the faster you compound your money.
Today, I want to tell you Why You Should Consider Buying Best Buy And Its 2.5% Dividend.
Best Buy (BBY) is one of the largest consumer electronics companies in the United States.
Its business initially took a large hit a few years ago due to the Retail Apocalypse I’ve talked about in a few separate articles.
But it repositioned itself and has been thriving… That is until Covid hit.
Initially its business took a large hit. But its shown surprising strength with revenue actually rising in the full year 2020 even as most other retailers struggled mightily.
Because of these things its stock has gone up 246.6% in the last 5 years… Again, as most other retailers have cratered.
This is incredibly powerful.
But it doesn’t help us figure out if Best Buy stock is a great buy now.
That’s what I want to help you figure out today.
It’s based in Richfield Minnesota. It has a $29.65 billion market cap. And it pays a 2.5% dividend… Which is reason #1 to consider buying its stock.
Best Buy’s 3% Dividend
Over the last decade Best Buy’s paid out a total of $10.36 per share in dividends.
At today’s share count of 263 million shares that’s equal to $2.45 billion paid out to shareholders in that time.
It also grew its dividend 284% from $0.56 per share in 2010 to $2.15 per share now.
These dividend payments will help you in normal times earn cash if you take the money out. Or allow you to buy more shares over time if you reinvest the dividends.
These regular payments will help you earn more money for your retirement. And the solid, stable, and growing dividends will help in any kind of prolonged economic issues like we’re dealing with today.
It can do this because it earns solid profits. Which is reason #2 to consider Best Buy for your retirement portfolio.
Best Buy Earns Solid Profits
Over the last decade it earned an average operating income margin of 4.3% per year.
I look for anything above 10% so this does not meet my threshold.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 3.2% per year on average.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above. If a company surpasses both thresholds it makes it a great operating business that is safe and ultra-valuable.
Best Buy falls short of both thresholds which means it’s not a world class business operation in terms of producing profits.
However, this doesn’t disqualify the company for me though because of its strength in the face of both The Retail Apocalypse and Covid.
Most retailers in the last year were unprofitable to a large degree due to closures and lockdowns.
Most even had to cut stuff, eliminate stores, or take on huge sums of debt just to survive.
But Best Buy remained profitable on both metrics which is impressive.
What about its debt levels? These are super important every time I analyze a stock for you.
Best Buy Has Low Debt
As of this writing BBY has $5.68 billion in cash compared to $4.73 billion in debt.
As a percentage of its balance sheet total liabilities make up only 80.7%.
Debt makes up only 16% of its market cap.
And its debt-to-equity ratio is a low 1.16.
Two of these are below the thresholds I look for which adds to the margin of safety… The Debt as a percentage of balance sheet and total cash to debt.
While the two other metrics are slightly above what I look for.
For example, I look for anything below 1 on the debt-to-equity ratio. But Best Buy’s number is right above this.
Mixed bag here, but no major red flags still.
What about its valuation? Is it cheap enough to buy?
Best Buy IS Cheap…
With the markets at or near all-time highs you’d expect a fantastic stock like Best Buy to be selling at an enormous valuation.
But it’s not.
As of this writing its P/E is 16.4.
Its P/CF is 5.99.
Its forward P/E is 15.7.
And its enterprise value to operating income – EV/EBIT is 11.4.
On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.
And on EV/EBIT I look to buy stocks below 8.
This means, Best Buy is undervalued by a decent amount now.
And this means owning its stock gives you a large margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning it in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning its stock going forward.
With Best Buy being undervalued, buying its stock today offers you a gigantic margin of safety… But not quite enough for me to fully recommend you buy it.
If you’re looking for a solid, safe, stable, and enormously profitable investment to buy to earn high and safe returns for your portfolio – consider investing in Best Buy and its 2.5% dividend… But only after you consider investing in some of the other great stocks below.
Because unlike most of the stocks I’ve told you where it’s obvious it’s something to buy or avoid. Best Buy due to its lower operating profits and free cash flow production that don’t meet my minimum requirements put this right on the edge of a solid buy recommendation.
Because of that I first recommend you consider buying the stocks below because they are definite buy potentials when I originally wrote the articles.
As of this writing, Best Buy still looks like a great stock to potentially consider buying.
- It has enormous competitive advantages.
- It earns massive profits and cash flows.
- It dominates its industry.
- Its cheap.
- And it pays you a large and growing dividend.
These are the exact kinds of stocks you must consider buying right now with the various risks in the market that I’ve talked about at length in the last few weeks.
If you’ve missed any of those articles, here are the main risks I’ve talked about at length the last few weeks.
- Stock market valuations at or near all-time records.
- Inflation is rising rapidly.
- Debt levels continue to go straight up and now sit at a combined $281 trillion worldwide.
- Interest rates are rising.
- Unemployment is rising again…
- And so are Covid cases and deaths.
It’s not just one large risk out there right now… There’s many… And almost no one else is telling you about any of this.
Because of all the risks out there right now, I sent you this article in case you missed it.
And I hope you consider investing in Best Buy stock to protect your retirement portfolio… Before any kind of market crash.
Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.