GME Stock: A High Dividend Retail Stock Yielding 5.79%
A High-Dividend Stock with Dividend Growth Possibilities
An income investor’s ideal stock would likely be a high-dividend stock with future dividend growth prospects. However, finding such a company can be quite time consuming and difficult. Also, the investment must make sense from a valuation perspective.
A company that would meet this criteria and that continues to reward their shareholders is GameStop Corp. (NYSE:GME) stock. A consumer electronics retailer specializing in video games, the current yield for GME stock is 5.79%, based on the current trading price of $25.52.
GME stock would also be considered a dividend growth stock as well. The dividend, reviewed annually each February, has increased 25% since 2013. And with a payout ratio of 39.15% of earnings, there is a possibility of further dividend hikes in the future.
In the third quarter of 2016, GameStop bought back $36.0 million worth of shares. An additional $209.3 million is expected to be bought back under the current share repurchase program. (Source: “GameStop Reports Third Quarter 2016 Results,” GameStop Corp., November 22, 2016.)
This benefits shareholders because share buybacks are a tax-efficient method of returning cash to them. And due to the repurchases, there are fewer shares available, which means the outstanding shares are worth a greater percentage of the company. This adds to the overall net worth of investors.
How to Find Undervalued Stocks
The first metric that makes GME stock look attractive is the price-to-earnings (P/E) ratio. This shows investors how much is being paid for each dollar of the company’s earnings.
GameStop’s current P/E ratio is 6.9 times. The reason this is attractive is because the S&P 500’s ratio is 26.01 times. Therefore, when comparing the two, GME stock trades at a discount.
Another metric that makes GME look attractive is the debt-to-capital ratio. This ratio details how the company is growing, whether it is via debt or by equity. A ratio of 50% or greater signifies that the company is growing by debt and may be over-leveraged, while below 50%, means the company is growing using its equity. The ratio for GME stock is 27.7%, meaning growth is via equity.
Final Thoughts on GME Stock
This is an opportunity to consider GME stock and its attractive valuation. Over the past year, shares have seen a flat return when the dividend is factored in.
GME stock is a high-dividend stock that could satisfy the needs of income investors, including those looking for growth in addition to the payout.