JB Hi-Fi (ASX:JBH) Could Be A Buy For Its Upcoming Dividend

By
Simply Wall St
Published
February 18, 2022
ASX:JBH
Source: Shutterstock

It looks like JB Hi-Fi Limited (ASX:JBH) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase JB Hi-Fi's shares on or after the 23rd of February will not receive the dividend, which will be paid on the 11th of March.

The company's next dividend payment will be AU$1.63 per share. Last year, in total, the company distributed AU$2.87 to shareholders. Based on the last year's worth of payments, JB Hi-Fi has a trailing yield of 5.3% on the current stock price of A$53.66. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether JB Hi-Fi has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for JB Hi-Fi

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. JB Hi-Fi paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 37% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that JB Hi-Fi's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
ASX:JBH Historic Dividend February 18th 2022

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see JB Hi-Fi's earnings have been skyrocketing, up 22% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. JB Hi-Fi has delivered 14% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Is JB Hi-Fi worth buying for its dividend? We like JB Hi-Fi's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. There's a lot to like about JB Hi-Fi, and we would prioritise taking a closer look at it.

While it's tempting to invest in JB Hi-Fi for the dividends alone, you should always be mindful of the risks involved. To that end, you should learn about the 2 warning signs we've spotted with JB Hi-Fi (including 1 which is concerning).

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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