Best Buy Co Inc (NYSE:BBY): A Top Dividend Stock with Strong Yield, Growth, and Financial Health

Investors looking for dependable dividend-paying stocks often use filters to find companies with strong dividend scores, good profitability, and sound financials. The "Best Dividend Stocks" tool on ChartMill picks these companies by setting minimum levels for the ChartMill Dividend Rating (≥7), Profitability Rating (≥5), and Health Rating (≥5), while also checking for enough liquidity and avoiding highly unstable low-priced stocks. These rules help investors find businesses that can maintain and increase their dividends over time.

One stock that fits these conditions is BEST BUY CO INC (NYSE:BBY), a top seller of consumer electronics and tech products.

Why BBY Is a Strong Choice for Dividend Investors

1. High Dividend Yield and Growth

BBY currently has a dividend yield of 5.55%, much higher than the S&P 500 average of 2.32% and the specialty retail sector average of 4.77%. This puts it among the best dividend-paying stocks in its field, beating 91.8% of similar companies. The firm has also shown a strong annual dividend growth rate of 13.37% over the last five years, proving its focus on raising shareholder payouts.

However, investors should be aware that BBY’s payout ratio is 91.39%, which is high and could raise questions about long-term stability. While the company has kept its dividend steady for at least ten years without reductions, the high payout ratio means future increases might be slower unless earnings grow faster.

2. Strong Profitability

BBY’s Profitability Rating of 6 shows its ability to produce steady earnings, a crucial factor for keeping dividends going. Key points include:

• Return on Equity (ROE) of 31.96%, placing it in the top 12% of its industry.
• Return on Invested Capital (ROIC) of 19.09%, well above the industry average (12.03%).
• A steady operating margin of 4.19%, better than 61.5% of competitors.

While gross margins (22.61%) are lower than some rivals, BBY’s efficient operations and strong cash flow help it keep up with dividend payments.

3. Sound Financial Condition

With a Health Rating of 6, BBY has a stable financial setup:

• Low debt, with a Debt-to-Equity ratio of 0.42, showing manageable borrowing.
• A solid Altman-Z score of 4.35, pointing to low bankruptcy risk and outperforming 84% of industry peers.
• A Debt-to-Free Cash Flow ratio of 0.93, meaning the company could pay off its debt in under a year using its cash flow.

One concern is liquidity—BBY’s Quick Ratio of 0.32 is below industry norms, suggesting possible short-term cash issues. Still, its overall financial strength remains solid.

4. Priced Lower Than Competitors

BBY trades at a P/E ratio of 10.71, far below the S&P 500 average (27.93) and cheaper than 82.8% of its industry peers. Its Forward P/E of 10.05 also indicates a good value compared to future earnings projections.

Final Thoughts

BBY makes a strong case for dividend investors, with a high yield, solid growth track record, and reasonable financial health. While the high payout ratio needs watching, the company’s profitability and low valuation make it worth considering.

For investors searching for more top dividend stocks, the Best Dividend Stocks tool offers more filtered options.

Disclaimer: This article is not financial advice. Always do your own research or talk to a financial expert before making investment choices.