GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

RadioShack (RSH) Dividend – Too Good To Be True?

July 11, 2012 | About:
Intelligent Speculator

Intelligent Speculator

6 followers
After posting the top 100 dividend stocks from the S&P500, I was asked why RadioShack had not made the cut. The answer did turn out to be because the stock is not part of the index. That being said, after a quick look, I could see why I was being asked about it. A stock that pays out a dividend of 12% with a fairly known brand? Seems like a great buy right? Or is it one of those deals that sounds fishy from the very start? Today I thought I would do further analysis using the top 20 things I look at when judging dividend stocks but also trying to determine if it would be a sustainable dividend portfolio or could maybe fit a higher dividend portfolio.

Dividend Metrics



TickerNameCurrent Dividend Yield5 year Dividend Growth1 year Dividend Growth
RSHRadioShack Corp12.5324.57200
RSH-dvd.png

Clearly, RSH isn’t that easy to judge. It had paid out a quarterly dividend until 2001, then changed it to a yearly dividend which did increase a few times until it reached $0.50 last year. Then earlier this year, RSH resumed a quarterly frequency paying out the same amount but on a more frequent basis. That is certainly a good thing but it’s not exactly a stable or predictable pattern either. Overall, the dividend remains very strong and if it could remain at that level, RSH would become fairly attractive for some investors.

Company Metrics



TickerNameSales Growth (1 year)Sales Growth (5 year)Earnings growthP/E ratioMargins growthPayout ratioReturn on EquityDebt to Capital Ratio
RSHRadioShack Corp2.630.39N/A7.96-2.4273.929.051.71
No doubt, these numbers are a lot weaker with sales growth being almost flat, earnings growth a bit negative. The payout ratio is high but remains within reason. What I think is worth looking at though is the progression in annual earnings per share in the last few years. It’s not exactly encouraging. Sales have been able to keep pace to some extent but profits are quickly declining.

Stock Metrics



TickerNameTrend AnalysisPriceTrading Volume
RSHRadioShack Corp-853.983281222.25
RSH.png

RSH-TA.png

No doubt about it, RSH is quickly losing its momentum…

Industry Metrics

It’s fairly obvious that while RadioShack operates in a fairly solid industry (retail consumer electronics), it also faces very stiff competition from similar players (Best Buy, etc), general retail stores (Walmart, etc) but also the online players like Amazon (AMZN). That has certainly squeezed margins for most players making life miserable for those that do not have a competitive advantage. RSH has smaller stores that are not equipped to compete with its powerful competition. It’s a good industry to be involved in but only for the few players that are able to compete.

Fit Within Your Portfolio

I don’t think there is any doubt that RSH would not fit in a long term sustaianble dividend portfolio. Its business outlook remains very uncertain. There might be some higher yield dividend portfolios that could use it but even that seems to be a bad idea. The stock was recently rated a sell with a $2.68 price taget by RW Pressprich and Oppenheimer issued warnings that the company will likely cut or even eliminate its dividend in the coming months. That is exactly the type of stock you would want to stay far away from.

I’d be curious, do any of you see value in RSH?


Rating: 2.3/5 (8 votes)

Comments

johnnyv
Johnnyv - 2 years ago
Unless RSH goes belly up, its a buy at this level....1) As long as they pay dividend, why not enjoy it?

2) If / when they decrease / eliminate such a huge dividend, it will reflect positively in earnings side of page. 3) Would not a bankruptcy allow for elimination of non profitable stores, thereby slimming the company? 4) Possibility: Candidate for sale or merger to/with foreign entity ????

UNLESS, they go belly up

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK