Big Ticket Shift Boosts Best Buy

09/24/2015 8:00 am EST


James Pearce

Director of Research, Investing Daily

Homeowners, especially first-time buyers, need new appliances and home-theater equipment for their new digs and our latest buy recommendation is well positioned to compete for that business, suggests Jim Pearce, editor of Personal Finance.

Known primarily for selling computers, stereos, and TVs, Best Buy (BBY) has been shifting gradually toward large home appliances such as refrigerators, washers, and dryers.

So I was particularly heartened to read that CEO Hubert Joly attributes an increase in sales to those big-ticket items.

Best Buy’s recent earnings report is proof that the company has successfully pivoted away from music and video sales.

Once viewed as a likely casualty of online e-tailers, Best Buy carved out a profitable niche by emphasizing products not easily sold online.

In addition to improving growth prospects, Best Buy increased its dividend payment 35% over the past year (not including a special cash dividend in April).

On August 26 the company confirmed its net quarterly dividend of $0.23 per share (payable on October 6 to shareholders of record as of close of business September 15), which works out to a yield of about 3%.

With a dividend yield higher than Treasury securities, Best Buy exemplifies the type of stock I like to own, especially during a flat market.

Its cash flow increases at a rate sufficient to pay that dividend without compromising the company’s investment in future growth, but it still trades at a forward P/E ratio below that of its peers.

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