Smart Dividend Portfolio Edition #40: Enduring Edge
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Dear Investor,
Welcome to the 40th edition of TipRanks’ Smart Dividend Portfolio & Newsletter.
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Market-Moving News: December 23, 2024
Despite Friday’s rally, stocks finished the week with heavy losses. The S&P 500 (SPX) declined by 1.99% and the Dow Jones Industrial Average (DJIA) tumbled by 2.25%. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) dropped by 1.78% and 2.25%, respectively.
Most of the weekly losses were due to the market’s dramatic reaction to the news from the Federal Reserve’s meeting on Wednesday. The central bank’s decision to reduce rates by 0.25% was widely expected and priced in. However, the Fed’s “Dot Plot” revealed that policymakers expect only two interest-rate cuts next year – versus the four they had penciled in at their September’s meeting. Moreover, Jerome Powell said that the rate committee members now anticipate higher core inflation in 2025 than was previously forecast, and that the central bank is “going to be cautious about further cuts.”
However, a strong upwards update to the Q3 2024 GDP growth assessment, and even more importantly, a weaker-than-forecast Core PCE inflation increase last month, injected a healthy dose of optimism into markets going into the weekend. After the Fed reset market expectations regarding the speed and depth of the monetary easing next year, it has more room to surprise markets with additional cuts supporting the rally if inflation continues to decelerate.
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This Week’s Quality Dividend Stock Idea
Best Buy Co., Inc. (BBY) is a Minnesota-based multinational retailer specializing in consumer electronics, appliances, and related services. Its operations include retail stores, online platforms, and service units offering technology products, repair services, and technical support. BBY is the world’s largest specialty consumer electronics retailer and the leading provider of tech support services in the U.S.
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Evolution and Strategic Growth
Best Buy was founded in 1966 as an audio specialty store in Saint Paul, Minnesota. In 1983, it rebranded as Best Buy, adopting a superstore format to expand into consumer electronics and appliances, fueling rapid growth.
In the 1990s, Best Buy introduced the “grab-and-go” store model, eliminating commissioned sales staff to streamline the customer experience. This strategy made it one of the fastest-growing U.S. electronics retailers. The company also pursued innovative strategies and partnerships that drove further expansion.
In the 2000s, Best Buy partnered with major electronics brands to create in-store showcases, such as the Apple Store-in-Store concept, and introduced customer segmentation strategies to optimize inventory and marketing. Strategic acquisitions diversified offerings and established Best Buy as a leader in technical support and in-home services. Thus, Geek Squad, acquired in 2002, became a cornerstone of Best Buy’s service offerings.
During the 2010s, Best Buy faced competition from e-commerce giants, declining store traffic, and shrinking profit margins. Then-CEO Hubert Joly’s “Renew Blue” strategy cut costs, invested in e-commerce, revamped stores as fulfillment hubs, and enhanced customer service by expanding the Geek Squad. Strategic vendor partnerships also strengthened Best Buy’s market position, reversing declines and restoring growth.
In the past decade, BBY expanded into health technology with acquisitions like GreatCall (2018), Critical Signal Technologies (2019), and Current Health (2021). These buyouts reflected a strategic shift towards health technology and services, helping Best Buy remain competitive, innovate its offerings, and adapt to market shifts.
Today, with a market cap of $18.3 billion and annual revenues of $42.2 billion, Best Buy ranks #100 on the Fortune 500 and remains a leader in U.S. consumer electronics, leveraging technology expertise, sustainability initiatives, and service-driven growth.
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Stellar Balance Sheet and Improving Profitability
Best Buy boasts excellent balance sheet health, with a low net debt-to-equity ratio of 10%, supported by strong operating cash flows that comfortably cover its debt. Additionally, the company’s significant holdings of cash, cash equivalents, and short-term investments earn more interest than it pays out. This financial stability is reflected in its high credit ratings: “BBB+” from S&P and “A3” from Moody’s. Best Buy also demonstrates impressive capital efficiency metrics, ranking in the top 25% of the Consumer Discretionary industry for ROA and ROIC, and the top 7% for ROE.
Although its margins are roughly in line with the industry average, Best Buy is actively implementing strategies to improve profitability. The company has tightened cost controls and revamped its membership program, boosting customer retention and margins.
A key component of its strategy is the ongoing shift to higher-margin services. This includes expanding its Geek Squad division, emphasizing in-home advisory services, and growing subscription-based offerings. Additionally, integrating healthcare technology services such as remote monitoring adds high-margin growth opportunities, aligning with long-term trends in health-related services. These initiatives help Best Buy reduce its reliance on low-margin consumer electronics sales while leveraging its expertise and customer relationships to drive profitability.
Technological advancements further position Best Buy to expand margins in the consumer electronics segment. With over 33% of the U.S. offline consumer electronics market, the company is well-placed to capitalize on growing demand for AI-powered laptops, PCs, iPads, and other devices.
Moreover, Best Buy has significantly enhanced its e-commerce capabilities. In fiscal year 2024 and the first three quarters of fiscal 2025, online sales accounted for roughly one-third of domestic revenue, up from 16% pre-pandemic. This growth positions the company to compete more effectively with online-only retailers.
Analysts view Best Buy’s strategic initiatives as well-suited for the competitive landscape. The company’s four pillars – investing in customer experience, driving operational efficiency, maintaining disciplined capital allocation, and pursuing incremental profit streams – are seen as key to ensuring its continued stability and growth.
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Shareholder-Friendly Capital Allocation Strategy
Best Buy maintains a disciplined capital allocation strategy, with a focus on several key priorities. These priorities include investments in core operations and growth initiatives to enhance its market position and drive long-term value; maintaining investment-grade credit metrics by preserving a strong balance sheet; and returning excess cash to shareholders through dividends and share repurchases.
Best Buy has a strong track record of consistent dividend payments and growth, having increased its dividend for 21 consecutive years. This consistent dividend growth reflects Best Buy’s commitment to delivering shareholder value and confidence in its financial stability. In the past decade, annual payouts grew at a CAGR of ~18.5%, slowing down to around 14% in the past five years, as dividend yield increased to its current high level.
BBY’s current dividend yield stands at 4.35%, more than five times the average for the Consumer Discretionary sector. Notably, the company’s moderate earnings-based and cashflow-based payout ratios indicate a balanced approach between returning income to shareholders and retaining earnings for growth and operations.
The company has an active share repurchase authorization, approved in 2022 for $5 billion. This buyback strategy is a key component of its capital allocation plan, aiming to enhance shareholder value by reducing the number of outstanding shares, thereby increasing EPS and demonstrating confidence in its financial stability and future prospects.
BBY has been actively repurchasing shares under this authorization, with $340 million in buybacks performed through fiscal 2024 and an additional $285 million repurchased in the first three quarters of fiscal 2025. The company expects to spend approximately $500 million on share repurchases during FY2025.
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Navigating Challenges and Capitalizing on Opportunities
Best Buy’s FQ3 2025 earnings release fell short of expectations, as ongoing macroeconomic uncertainty, customers waiting for holiday deals and sales events (such as Black Friday), and distractions from the election period softened demand for non-essential categories in the latter half of the quarter. This led to a weaker performance, reducing the stock’s trailing twelve-month (TTM) gain to approximately 17%.
Consequently, Best Buy’s valuations declined, with the stock now trading at roughly a 20% discount to its sector’s average multiples, positioning it at the lower end of the valuation scale compared to peers. Additionally, based on discounted future cash flows, the company appears undervalued by approximately 60%, categorizing BBY as a “deep value” stock. Analysts’ average price targets suggest an 18% upside over the next 12 months.
However, this discount may not persist for long. According to CEO Corie Barry, Best Buy has experienced increased demand in the first weeks of FQ4, driven by strong online sales, robust growth in computing and tablet categories, and a successful start to the holiday season. The fiscal fourth quarter typically accounts for about a quarter of Best Buy’s annual revenue, making this strong start a positive indicator for overall income and stock performance.
Furthermore, recent economic data points to solid discretionary spending potential. Consumer sentiment remains strong, the labor market is resilient, and financing costs are gradually easing. With election-related uncertainty behind us, continued economic strength, and consumer readiness to spend, Best Buy’s stock appears well-positioned for long-term gains, supported by its current attractive valuations.
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Investing Takeaway
Best Buy is the leading specialty consumer electronics retailer in the U.S., commanding over a third of the offline market and excelling in tech support services. The company’s robust financial health is underscored by its low debt, strong cash flows, and investment-grade credit ratings. BBY offers a dividend yield that far exceeds the sector average, supported by balanced payout ratios and building on a 21-year track record of dividend increases. With a large share repurchase authorization, the company demonstrates a shareholder-friendly capital allocation strategy. Trading at deep discounts to its sector and industry peers and benefiting from e-commerce growth and higher-margin services expansion, Best Buy is well-positioned for long-term income-focused investors seeking value and dependable returns.
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Dividend Investor Portfolio
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Portfolio News
▣ The ex-dividend date for Philip Morris (PM) is December 26th.
▣ Qualcomm (QCOM) won a legal battle against Arm Holdings, which had claimed that Qualcomm violated a licensing agreement tied to its $1.4 billion acquisition of chip startup Nuvia in 2021. According to media reports, a Delaware jury ruled that Qualcomm didn’t breach Arm’s license terms when incorporating Nuvia’s technology into its own chips without paying a higher fee, although they were split on whether Nuvia itself had breached the agreement.
▣ According to analysts, Amgen (AMGN), along with Eli Lilly, is expected to benefit from underwhelming results of Novo Nordisk’s trial of its experimental obesity shot CagriSema. CagriSema’s efficacy now appears similar to that of Amgen’s drug MariTide, but with potential gastrointestinal side effects that may make CagriSema less appealing. Moreover, MariTide has the advantage of a monthly titration regimen, which could be more convenient for patients.
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Recent Trades
None at the moment, although we are constantly evaluating stocks for a possible addition to the portfolio. Stay tuned.
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Portfolio Attributes
| Dividend Portfolio Yield |
Expected Dividend Growth | Expected Annual Income |
| 3.80% | +9.48% | $4,976.56 |
| Yield-on-Cost Adjusted, Weighted |
Average Analyst 12-Month Growth Outlook | 10K Per Stock at the Time of Purchase |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Yield on Cost | Annual DPS |
| Automatic Data Processing (ADP) | Dec 06, 2024 | Jan 01, 2025 | 2.24% | $5.60 |
| Allianz SE ADR (ALIZY) | May 09, 2025 | May 28, 2025 | 5.67% | $1.49 |
| Amgen (AMGN) | Feb 14, 2025 | Mar 07, 2025 | 3.09% | $9.00 |
| BlackRock (BLK) | Dec 05, 2024 | Dec 23, 2024 | 2.56% | $20.40 |
| Edison International (EIX) | Jan 07, 2025 | Jan 31, 2025 | 4.82% | $3.12 |
| EOG Resources (EOG) | Dec 13, 2024 | Dec 30, 2024 | 3.95% | $3.64 |
| IBM (IBM) | Feb 10, 2025 | Mar 10, 2025 | 3.13% | $6.68 |
| JPMorgan Chase (JPM) | Jan 06, 2025 | Jan 31, 2025 | 2.86% | $5.00 |
| Kroger (KR) | Feb 15, 2025 | Mar 01, 2025 | 2.82% | $1.28 |
| LyondellBasell (LYB) | Mar 10, 2025 | Mar 17, 2025 | 5.27% | $5.36 |
| Philip Morris (PM) | Dec 26, 2024 | Jan 13, 2025 | 6.06% | $5.40 |
| Qualcomm (QCOM) | Mar 03, 2025 | Mar 24, 2025 | 2.25% | $3.40 |
| VICI Properties (VICI) | Dec 17, 2024 | Jan 09, 2025 | 5.19% | $1.72 |
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
