Featured Stock In January’s Dividend Growth Model Portfolio

11 new stocks make our Dividend Growth Stocks Model Portfolio this month, which was made available to members on January 30, 2019.

The long-term success of our model portfolio strategies highlights the value of our Robo-Analyst technology[1], which scales our forensic accounting expertise (featured in Barron’s) across thousands of stocks[2].

The methodology for this model portfolio mimics an All-Cap Blend style with a focus on dividend growth. Selected stocks earn an Attractive or Very Attractive rating, generate positive free cash flow (FCF) and economic earnings, offer a current dividend yield >1%, and have a 5+ year track record of consecutive dividend growth. This model portfolio is designed for investors who are more focused on long-term capital appreciation than current income, but still appreciate the power of dividends, especially growing dividends.

Featured Stock from January: Best Buy Co. (BBY: $59/share)

Best Buy Co. (BBY) is the featured stock from January’s Dividend Growth Stocks Model Portfolio. We also featured BBY as a Long Idea in April 2018.

Since fiscal 2014, BBY has grown after-tax operating profit (NOPAT) by 12% compounded annually. BBY’s NOPAT margin has improved from 2% in fiscal 2014 to 3% over the last twelve months (TTM) while its return on invested capital (ROIC) improved from 7% to 15% over the same time.

Figure 1: BBY’s Profits On the Rise Since Fiscal 2014

Sources: New Constructs, LLC and company filings

Steady Dividend Growth Supported by FCF

Best Buy has increased its annual dividend in each of the last six years and eight times within the last decade. BBY’s annual dividend has grown from $0.68/share in fiscal 2014 to $1.80/share TTM, or 21% compounded annually. Positive free cash flow fueled dividend growth in the past and should continue to do so in the future.

From fiscal 2014 to fiscal 2018, BBY generated cumulative FCF of $12.5 billion (78% of market cap) while paying $1.9 billion in dividends. Over the TTM period, BBY has generated $1.2 billion in FCF and paid $475 million in dividends.

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Disclosure: David Trainer, Kyle Guske II, and Sam McBride receive no compensation to write about any specific stock, style, or theme.

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