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What Has Affected Best Buy’s Dividend Yield?

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Best Buy’s revenue and EPS growth

Best Buy’s (BBY) revenues fell 1% and 2% in 2015 and 2016, respectively. Comparable sales just managed to end in positive territory for 2015 and 2016. Comparable sales pertaining to the company’s domestic revenue mix saw growth in consumer electronics and appliances, which was offset by computing and mobile phones, entertainment, and services. Gross profit rose 2% in 2016 after falling 4% in 2015. This fall was due to a decrease in cost of sales for 2016 after an increase in 2015. Operating income rose 27% in 2015 before falling 5% in 2016 due to lower SG&A and restructuring expenses in 2015 before rising in 2016. Overall, the company’s EPS rose 128% in 2015 before falling 27% in 2016. Interest expenses fell during the period offset by a decline in other income. EPS for 2016 was further enhanced by share buybacks.

Revenue for 2017 remained almost flat before growing 3% in 1H18, which was due to a slight weakening of comparable sales for 2017 before regaining steam in 1H18. Comparable sales pertaining to the domestic revenue mix rose in consumer electronics and appliances, which was offset by computing and mobile phones, entertainment, and services for 2017. Every component of domestic revenue mix noted comparable sales growth in 2Q18. In the international revenue segment, every component posted growth offset by services. Gross profit rose 3% in 2017 before falling 1% in 1H18 due to a decline in the cost of sales for 2017 before a recovery in 1H18. Operating income rose 35% in 2017 before falling 6% in 1H18. This was due to a decline in SG&A and restructuring expenses for 2017 before some increase in SG&A for 1H18. All of this translated into 49% EPS growth for 2017 followed by a 3% decline in 1H18. Interest expense fell during the periods. Share buybacks further enhanced the EPS numbers.

Best Buy’s dividend yield

The dividend yield has seen a decline over the years despite the dividend growth due to the rising prices. Prices at present have risen 43% compared to the 2014 level. The company generates enough free cash flow to pay off its dividends.

Best Buy has a dividend yield of 2.4% and a YTD price gain of 30.8%. Let’s compare that with the broad indexes. The Dow Jones Industrial Average (DJIA-INDEX) (DIA) has recorded a dividend yield of 2.3% and price gains of 18% on a YTD basis. The S&P 500 (SPX-INDEX) (SPY) has recorded a dividend yield of 2.3% and price gains of 15% on a YTD basis. The NASDAQ Composite (COMP-INDEX) (ONEQ) has recorded price gains of 23.2% on a YTD basis.

The First Trust NASDAQ Rising Dividend Achievers ETF (RDVY) is a dividend ETF with exposure to Best Buy. It has a dividend yield of 1.2% and a PE of 15.7x. The Vanguard Dividend Appreciation ETF (VIG) is a dividend ETF with exposure to Best Buy. It has a dividend yield of 2% and a PE of 23.5x.

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