(BBY) Best Buy Raises Dividend and Approves Share Buyback

Best Buy Company Inc. (BBY), in its attempt to optimize its shareholders’ return, decided to employ its available free cash in raising its quarterly dividend and also approved a share buyback program.

The leading specialty retailer of consumer electronic products, home office products, entertainment software, appliances and related services, raised its quarterly dividend by approximately 7% to16 cents. The increased dividend will be paid on October 25, 2011 to shareholders of record as of October 04, 2011.

Additionally, the company also announced a new share repurchase program, replacing the previous $5.5 billion program.

The recently announced program authorizes the company to buy back up to $5 billion shares of its common stock. Best Buy had approximately $800.0 million left at its disposal under its old repurchase program as of May 28, 2011.

Increase in dividend reflects the company’s sound financial position and well-defined future prospects. The signs of recovery in the economy have made share buybacks and dividend increases a common factor among companies sitting on extra cash. These strategies will enhance shareholders’ return and boost the market value of the stock.

Best Buy intends to focus more on profitable products, such as tablets, mobile phones, appliances and gaming. The company’s International business also provides opportunities for growth. It expects to strengthen the functions of the Best Buy brand in China with the Five Star division, and expand in the new markets of Mexico and the United Kingdom.

However, we still remain concerned about falling comps in televisions, and entertainment hardware and software categories.

Moreover, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively impact their discretionary spending, and in turn, the company’s growth and profitability.

Given the pros and cons, we maintain our Neutral rating on the stock. Moreover, Best Buy, which faces competition from Wal-Mart Stores Inc. (WMT), also holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating, and correlates with our long-term recommendation.

BEST BUY (BBY): Free Stock Analysis Report

WAL-MART STORES (WMT): Free Stock Analysis Report

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