BBBY has never been on my radar screen as a consistent dividend payer. But likely due to the widespread 'Amazon Effect', BBBY, like just about all other retail stores and the REITs that hold them, have seen their prices decline, decline and decline more while dividend growth rates continue to slow for most. BBBY is no exception.
Current Yield has gradually increased and is now at about 5.9%. Dividends have only been paid since July 2016, with dividend growth rates of 20%, 6.7% and 6.3%, assuming the 2019 quarterly dividend remains at $.17. Not much of a dividend history to go by.
A bit surprisingly, BBBY has an excellent CF history, until recently...
The last three 4Q rolling periods show a decline in Operational Cash Flow with the last 2Q showing a similar decline in Revenue per share. The interest expense, as a percent of CFFO + Interest, is very low while its Dividend to CFFO payout ratio is also very low. BBBY is paying out only a very small amount of its net CFFO as a dividend.
And the percent of its investing activities paid for with operational cash after paying any and all dividends has exceeded 100% in all rolling 4Q periods over the past 10Q.
The metric that would have me questioning if I wanted to add this stock to my income portfolio would be the following
This graphic clearly shows BBBY has made some large investments beginning 2Q18, to which the net Operational Cash showed a promising jump up, but then over the last two quarters, turned and went the wrong direction. This is not a good sign, as the high expenditure of cash on new investments should be showing a steady increase in net operational cash or CFFO...but it isn't.
BBBY has an excellent CF history, with all dividends and net investing activities very well covered. But the big question mark here, as is the case with other retailers like KSS and GPS, is what effect will Amazon's continued expansion in retailing, have on these kinds of Brick and Mortar retail companies. My sense is BBBY is a high-touch product company that will likely be less affected by the commoditization of no-touch mail order....but that's only a guess.
Is the 5.9% dividend worth it?
Given all of their serial troubles and restructuring, I would be very hesitant to get involved with BBBY. They have destroyed an unbelievable amount of value with big stock buybacks at higher prices. I believe their CEO is talking about investing in the stores (the ones they aren't closing) so that should put pressure on cash flow. Activists are also involved and/or circling.
A long slow bleed of market share seems likely. Doesn't seem like a great foundation for a large, safe, and growing dividend to me.
BBBY doesn't carry too much that people won't look to order online, so I don't see their products as "high touch." It's not just Amazon they are losing the race to, WMT and TGT are picking up share from them as well. The investment they will need to make in their stores and WEB capabilities will be big over the next few years. I would steer clear of this stock..