John Fattibene of Harvest Financial Planners manages Covestor’s Domestic Dividend model, which seeks to invest in high-quality, well-managed companies that pay a dividend. Fattibene recently added Best Buy (NYSE: BBY) to the model, so we asked him to share his reasons for the transaction. His response follows.
We bought BBY because it met our 3 criteria:
1) The company pays and has been growing its dividend. With a very low payout ratio, we think the dividend should be stable and will continue to be increased.
2) Best Buy is the largest electronics retailer in the country. While there has been some shift from buying electronics in stores to buying online, we still believe there is a significant part of the population that needs help and wants to see the product before purchasing. Best Buy also has an internet presence. We also like the fact that since electronics continue to shrink, BBY is looking at shrinking its store size.
3) We bought BBY when it was selling at a low multiple against forward earnings. The company also generates a lot of free cash (cash available after expenses and capital expenditures).
Finally, we felt the company was washed out as it has dramatically underperformed the market over the last year. We think it represents a terrific value and assess its fair value to be considerably above its trading price.