Best Buy Co., Inc. (NYSE:BBY) isn’t the kind of retailer that immediately comes to mind when you think about companies with a wide economic moat. After all, consumers can buy the same electronics from Amazon, Walmart, or directly from manufacturers. Still, Best Buy has managed to carve out a fairly durable position in the consumer electronics market by combining its stores, online business, product expertise, and services.
The company operates more than 1,000 stores across North America and generated $41.7 billion in revenue in fiscal 2026. One of its biggest advantages is that it doesn’t just sell electronics. Customers can also turn to Best Buy for installation, repairs, technical support, and consultations. Its Marketplace and Best Buy Ads businesses are also giving the company more ways to generate higher-margin revenue beyond simply selling products. Read about the company’s moat here.
The latest results suggest that the strategy is beginning to pay off. In the second quarter of fiscal 2027, comparable sales rose 4.1%, while revenue increased to $9.78 billion from $9.44 billion a year earlier. Adjusted EPS jumped 15% to $1.47. Best Buy also raised its full-year adjusted EPS guidance to $6.70-$6.90, up from its previous range of $6.30-$6.60.
Best Buy’s Dividend
Best Buy currently pays a quarterly dividend of $0.96 per share, or $3.84 annually. With the stock recently trading around $87, that works out to a dividend yield of about 4.4%. That’s roughly in line with the company’s five-year average yield of around 4.3%, according to Yahoo Finance. Btw, there’s another stock trading at an even lower multiple and has a dividend yield over 6%. Find here.
The company raised its dividend by 1% earlier this year and has continued paying $0.96 per share each quarter. The latest dividend was declared in August and paid on October 8. The dividend also looks reasonably well covered by earnings. Using the midpoint of management’s $6.70-$6.90 adjusted EPS guidance, the $3.84 annual dividend represents a payout ratio of about 56%. That isn’t particularly aggressive and leaves the company with room to reinvest in the business, pay down debt, and return additional cash to shareholders through buybacks.
Free cash flow tells a similar story. Best Buy Co., Inc. generated $1.30 billion in operating cash flow during the first six months of fiscal 2027 and spent $344 million on capital expenditures. That left the company with roughly $952 million in free cash flow. It paid $405 million in dividends during the same period, meaning dividends consumed less than half of its free cash flow. That’s a positive sign for income investors. Best Buy isn’t relying on additional borrowing or cutting back sharply on investments just to keep the dividend going.
Is Best Buy Stock Cheap?
The valuation is arguably more interesting than the dividend yield itself. The stock is currently trading at around 13.6 times forward earnings, compared with a trailing P/E of roughly 15 times. At 13.6 times forward earnings, investors are paying about $13.60 for every $1 of expected earnings. That’s equivalent to a forward earnings yield of roughly 7.4%.
For a company expecting adjusted EPS of $6.70-$6.90 this year, that doesn’t look like an expensive valuation, particularly after management raised its earnings guidance. It also gives investors some room to earn a decent total return from both the dividend and future earnings growth. There are still some risks to consider. Best Buy Co., Inc. operates on thin margins, with an operating margin of just 4.3% in the latest quarter. That means even relatively small changes in consumer spending, product margins, or tariffs can have a meaningful impact on profits. The company also has to compete with Amazon and other retailers, while the fast pace of change in consumer electronics can make inventory management more difficult.
Even so, the latest quarter was encouraging. Best Buy managed to grow sales while also improving profitability, and the higher earnings guidance suggests management is becoming more confident about the year ahead. At around 13.6 times forward earnings, the stock looks reasonably valued rather than expensive.
For dividend investors, that’s an attractive combination. A yield of roughly 4.4%, a payout ratio in the mid-50% range, solid free cash flow coverage and a relatively modest forward P/E give Best Buy a decent balance of income and valuation support. The business still faces plenty of competition and operates in a challenging retail environment, but investors don’t appear to be paying a premium price for the dividend at today’s valuation.
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This article is originally published at Insider Monkey.
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