Consumer electronics giant Best Buy (NYSE:BBY) today issued a press release packed with news, but most interesting in the entire document might be the tidbit that the company will begin paying a dividend beginning in December.
Income investing fell out of vogue in the 1990s. After all, any company with no better use for its cash than to pay it out to investors -- especially with the economy so strong and so many new business avenues seemingly available -- must have been short on ideas.
In fact, some business are, and should be, perfectly fine with doing just that. Companies in steady-growth industries with strong free cash flow that pay regular dividends -- Tootsie Roll (NYSE:TR) comes to mind -- aren't necessarily going to reward investors by seeking out risky new markets or overpriced acquisitions.
In the end, the reasons companies do or don't offer dividends are as varied as the companies themselves. You can bet software giant Microsoft (NASDAQ:MSFT), with what Jeff Fischer suspects might be the world's strongest balance sheet, held off paying one as long as it could. (The company expanded its dividend program last month.)
Eastman Kodak (NYSE:EK), meanwhile, resisted cutting its dividend, despite having better uses for its cash, for fear of scaring away longtime income investors, but finally gave in last month. (For yet another look at how dividends aren't always a blessing, check out Tom Jacobs' column on Hawaiian ElectricIndustries (NYSE:HE), which pays more in dividends than it makes in net income.)
In Best Buy's case, however, this looks like good news. Especially, since the company also discussed plans to continue growing and to continue eking out better performance. It also plans to begin buying back shares, which will boost per-share earnings (mathematically, at least).
One might interpret the move as a sign that growth is slowing -- over time, with large companies that don't make major acquisitions, it almost always does. But Best Buy is performing well, improving margins, and successfully ditched its struggling Musicland division. By paying a dividend, management appears focused on delivering for customers and investors.
Dave Marino-Nachison can be reached at [email protected].
