Updated 3/6/25
Best Buy has been a household name in consumer electronics for decades. From selling VCRs in the ‘80s to today’s smart home devices, the company has evolved with changing technology. Despite growing competition from online retailers, Best Buy has managed to stay relevant, thanks to strong customer service, store presence, and a focus on tech support services like Geek Squad.
For dividend-focused investors, Best Buy presents an interesting mix. The company offers a high yield and a history of dividend growth, but with some challenges that could impact long-term payouts. With shifting consumer spending habits and a volatile retail environment, it’s worth examining whether Best Buy is still a reliable income investment.
Key Dividend Metrics
📊 Dividend Yield: 5.03% (Higher than its historical average)
💰 Annual Dividend: $3.80 per share
📈 5-Year Average Yield: 3.59% (Current yield is significantly above this level)
🔄 Dividend Growth Streak: Over a decade of consistent raises
🛡️ Payout Ratio: 87.85% (A red flag, as it’s close to unsustainable levels)
📆 Next Ex-Dividend Date: March 25, 2025
📅 Last Dividend Date: January 7, 2025
Dividend Overview
Best Buy’s dividend yield is currently at an impressive 5.03%, significantly higher than its five-year average. For income investors, this might seem like a great opportunity, but there’s more to the story. The payout ratio is nearing 88%, which means almost all of the company’s earnings are going straight to dividends. That’s fine in a stable growth environment, but with revenue declining and earnings under pressure, it’s something to keep an eye on.
While Best Buy has a long history of rewarding shareholders, its ability to continue doing so depends on how well it navigates the current retail landscape. If revenue continues to shrink or the economy slows down, the company might be forced to scale back future dividend hikes.
Dividend Growth and Safety
Best Buy has been increasing its dividend for years, a sign that management prioritizes shareholder returns. But there’s a difference between a dividend that grows sustainably and one that stretches company finances too thin.
Earnings have taken a hit recently, dropping 74.6% year-over-year. That’s a steep decline, and if the trend continues, it could put the dividend at risk. Free cash flow is still solid at $1.27 billion, which provides some cushion, but debt levels are creeping up.
A payout ratio nearing 90% isn’t necessarily a dealbreaker, but it does mean Best Buy has limited flexibility to keep raising dividends without stronger earnings. Unless profitability improves, future increases could be smaller or even paused.
Chart Analysis
Price Movement and Trend
The stock has experienced a notable decline in recent weeks, dropping sharply from the low $90s to below $75 before staging a small rebound. This type of movement suggests a strong sell-off, potentially triggered by earnings, guidance revisions, or broader market factors.
The 50-day moving average (orange line) has turned downward and is now sloping below the 200-day moving average (blue line). This kind of crossover is often seen as a bearish signal, indicating a shift in momentum to the downside. Prior to this, the stock had been trending sideways, showing some resilience, but the recent breakdown has disrupted that pattern.
Volume and Market Participation
Volume spiked dramatically on the recent decline, with a significant uptick in selling pressure. Heavy volume on down days often suggests institutional selling, meaning larger investors may be unwinding positions. However, there was also a notable increase in volume on the recent rebound, which could indicate dip-buying interest at these lower levels.
Sustained elevated volume will be important in determining whether this bounce has real strength behind it or if it’s just a temporary reaction before further downside.
Relative Strength Index (RSI)
The RSI is currently around 56.79, which puts the stock in neutral territory. Earlier, it had dipped near oversold levels, which may explain the recent bounce. Typically, an RSI below 30 signals an oversold condition, while above 70 indicates overbought levels.
If the RSI begins to rise and holds above 50, it could signal a shift in momentum back to the upside. However, if it starts rolling over again, it may suggest that this recent rebound is losing steam.
Support and Resistance
The sharp drop has brought the stock down to an area near previous support levels from mid-2023. The $75-$78 range seems to be acting as a short-term floor, but if this level breaks again, there could be further downside toward the $70 region, where stronger historical support exists.
On the upside, the $85-$88 range is shaping up as resistance, as it aligns with the 50-day and 200-day moving averages. If the stock can push through those levels and hold, it would indicate renewed strength. Otherwise, it may struggle to regain its footing.
Analyst Ratings
Upgrades
📈 DA Davidson
On March 5, 2025, DA Davidson adjusted its price target for Best Buy from $117.00 to $110.00 while maintaining a “buy” rating. This update suggests continued confidence in the company’s potential, albeit with a slightly tempered outlook.
Downgrades
📉 Evercore ISI
On March 5, 2025, Evercore ISI lowered its price target for Best Buy from $95.00 to $80.00 and assigned an “in-line” rating. This adjustment indicates a more cautious stance, reflecting concerns about the company’s near-term performance.
📉 Morgan Stanley
On March 5, 2025, Morgan Stanley reduced its price target for Best Buy from $100.00 to $85.00, maintaining an “equal weight” rating. This revision reflects a neutral position, suggesting that the stock’s current price appropriately balances potential risks and rewards.
📉 KeyCorp
On March 5, 2025, KeyCorp reiterated a “sector weight” rating on Best Buy, indicating a belief that the company’s performance will align with the broader industry.
Consensus Price Target
💰 As of March 5, 2025, the consensus among analysts is a “Moderate Buy” rating for Best Buy, with an average 12-month price target of $94.83. This target suggests a potential upside from the current stock price, reflecting cautious optimism about the company’s future prospects.
These mixed ratings and price targets highlight the varied analyst opinions on Best Buy’s future performance, influenced by factors such as recent earnings results, market conditions, and company-specific developments.
Earnings Report Summary
Best Buy’s latest earnings report gave investors a lot to digest, with both positive takeaways and a few challenges. The company wrapped up the quarter with $13.95 billion in revenue, which was a drop from last year’s $14.65 billion. That might sound concerning at first, but it’s important to note that the previous year had an extra week, which boosted those numbers. Adjusting for that, comparable sales actually ticked up 0.5%, showing that the core business is holding steady.
Sales Breakdown
In the domestic market, revenue slipped by 5.2% to $12.71 billion, but there was still some bright news—comparable sales managed a slight increase of 0.2%. Strong demand in computers, tablets, and services helped offset weaker sales in appliances, home theater, and gaming. The international segment held up even better, with revenue staying fairly level at $1.23 billion and comparable sales growing 3.8%. This suggests that Best Buy’s overseas operations are still in solid shape, even with currency fluctuations and other headwinds.
Profitability and Earnings
On paper, Best Buy’s earnings per share (EPS) looked rough, coming in at $0.54, a steep drop from last year’s $2.12. But there’s a catch—this quarter included a $2.02 goodwill impairment charge related to Best Buy Health. Without that, adjusted EPS came in at $2.58, which paints a much healthier picture of the company’s profitability.
Looking at overall efficiency, the operating income rate came in at 1.6% on a GAAP basis, compared to 3.8% the previous year. Excluding one-time adjustments, the adjusted operating margin was 4.9%, just a hair below last year’s 5.0%. So while there was some margin pressure, it wasn’t a dramatic drop.
Best Buy has a strong history of rewarding shareholders, and that trend continued. The company raised its dividend by 1% to $0.95 per share, keeping its streak of steady payouts alive. On top of that, it returned $415 million to investors through dividends and share repurchases during the quarter, bringing total returns to $1.3 billion for the full year.
Looking Ahead
With fiscal 2026 on the horizon, Best Buy faces a mix of challenges and opportunities. Consumer demand is shifting, and competition remains fierce, but the company has shown it can adapt. The focus will now be on maintaining profitability and finding new ways to drive growth while continuing to return value to shareholders.
Financial Health and Stability
🔹 Revenue: $41.53 billion (Declining at -4.8% YoY)
🔹 Net Income: $927 million (Earnings pressure is evident)
🔹 Operating Margin: 4.91% (Stable, but not particularly high for retail)
🔹 Debt-to-Equity Ratio: 144.34% (Indicates a high level of leverage)
🔹 Cash on Hand: $1.58 billion (Provides some liquidity, but debt remains a concern)
Best Buy’s financials tell a story of resilience but also mounting pressure. Revenue has dipped nearly 5% year-over-year, which isn’t an encouraging sign for a dividend stock. The company is still profitable, but declining earnings suggest challenges ahead.
The biggest concern is debt. With a debt-to-equity ratio of over 144%, the company is more leveraged than many of its competitors. While cash flow remains healthy for now, a high debt load can become an issue if economic conditions weaken.
Valuation and Stock Performance
📉 52-Week Range: $69.29 – $103.71
📈 Current Price: $78.60 (Closer to the lower end of the range)
📊 Trailing P/E Ratio: 17.65 (Not overly expensive, but not cheap either)
📉 Forward P/E Ratio: 11.67 (Suggests expected earnings recovery)
📌 Price-to-Sales Ratio: 0.39 (Indicates a relatively low valuation)
📉 Price-to-Book Ratio: 5.75 (On the higher side for a retailer)
The stock has struggled, currently trading closer to its 52-week low. While some investors might see this as a buying opportunity, others might be cautious given the earnings decline. The forward price-to-earnings ratio suggests analysts expect a recovery, but there’s no guarantee that will play out.
From a valuation perspective, Best Buy is reasonably priced but not deeply undervalued. If the company can stabilize earnings and improve revenue growth, there could be upside. If not, the stock might continue to lag behind broader market performance.
Risks and Considerations
🔺 Earnings Decline: A 74.6% drop in quarterly earnings is significant and could impact future dividend growth.
🔺 Consumer Spending Slowdown: Best Buy relies on discretionary spending, which can be volatile in uncertain economic conditions.
🔺 High Payout Ratio: At nearly 88%, there’s little room for further dividend increases without stronger earnings.
🔺 E-Commerce Competition: Amazon and other online retailers continue to take market share, putting pressure on brick-and-mortar sales.
🔺 Debt Levels: A high debt-to-equity ratio means the company has to manage its balance sheet carefully to avoid long-term issues.
For investors looking at Best Buy for dividends, these factors need to be considered. While the company has a history of paying out solid dividends, external risks could impact its ability to maintain current payouts or grow them further.
Final Thoughts
Best Buy offers an attractive dividend yield, making it appealing to income investors. With a history of dividend increases and a strong market position, the company has been a reliable choice for those seeking passive income.
However, there are clear risks. The high payout ratio, declining earnings, and competitive retail landscape create uncertainty around future dividend growth. Best Buy still generates healthy cash flow, but if revenue and profitability don’t stabilize, it could face difficult decisions about future payouts.
For now, the dividend looks secure, but investors should monitor earnings trends and cash flow closely. If the company successfully navigates its challenges, it could continue to be a solid dividend stock. If not, the current high yield may not be as safe as it appears.
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