By Ian Salisbury

Best Buy is known for its laptops and smartphones. But the best thing on sale might be its 5% dividend.

Best Buy stock surged nearly 17% Thursday after the electronics chain reported first-quarter operating earnings of $1.28 a share, up from $1.15 a year earlier -- helped by higher margins and a 2% bump in same-store sales. Overall revenue rose 2% to $8.94 billion from $8.78 billion.

Those stock gains -- and the company's stable growth outlook -- still pale in comparison to its dividend. If anything, Thursday's update offers reassurance that the payout is safe going forward.

The shares, which traded at around $76 mid- morning, are still well below last October's high of $84. Wall Street is worried the stock may be a collateral victim of artificial intelligence -- because data centers' rush to buy up memory chips has created a shortage that might lead to higher PC prices, putting off consumers.

Best Buy, meanwhile, stoked the uncertainty further when it announced in April that CEO Corie Barry would step down Oct. 31, to be replaced by longtime company veteran Jason Bonfig. Share prices fell almost 5% on the news.

Looking forward, Best Buy is making strides to improve sales and should deliver profit growth this year and next. But that might just be an added bonus to its healthy dividend.

Despite the memory shortage, dubbed "RAMageddon," Wall Street analysts expect Best Buy to deliver earnings growth of 1% for the current fiscal year ending in January 2027, and 8% the following year. The company itself has forecast full-year operating earnings of $6.30 to $6.60, compared with $6.43 for fiscal 2026.

On the company's Thursday conference call, CEO Barry was asked whether she thought recent sales figures have been artificially inflated as consumers rushed to make purchases ahead of impending shortages. Barry countered that the issue didn't appear to be on customers' radars.

"We are not seeing any indicators that would say the customer's pulling forward purchases. In fact, very few are worried about memory," she said. "While they're thoughtful about the big-ticket buys, they're absolutely willing to spend on those high price points when they need to or when the technology is compelling enough."

While shareholders are right to be concerned about the potential headwind, for many dividend investors, the company's long-term growth prospects -- and the health of the payout -- are bigger concerns. On this front, there are several bright spots. The company said Thursday that sales grew across categories like gaming, computing, mobile phones, and services.

While appliances sales have been weak thanks to a dismal housing market, CEO-in-waiting Bonfig said efforts to improve marketing and delivery speed seemed to be taking effect and had shown results in May and over the Memorial Day weekend.

Best Buy has also had success diversifying into new areas. The company launched Best Buy Marketplace to accommodate third-party sellers last August, and has been selling advertising space on its website through Best Buy Ads, taking a page from retail giants like Amazon.com and Walmart.

Those efforts probably won't turn Best Buy into a go-go growth stock. But for many dividend investors, it doesn't need to be. The stock's 96-cents-a-share quarterly payout translates into a dividend yield of around 5%, among the highest in the S&P 500.

With Wall Street analysts forecasting a fiscal 2027 annual profit of $6.48 a share, the company should easily be able to cover the payout's annualized cost of $3.84. In addition to the dividend, Best Buy said it spent $202 million on share buy backs during the first quarter and planned to spend another $300 million by the end of the fiscal year.

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 28, 2026 13:31 ET (17:31 GMT)

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