How JB HiFi (ASX:JBH) shares became an ASX dividend powerhouse

JB HiFi Ltd (ASX: JBH) announced a whopping 82% dividend increase this morning. Here’s how JB shares have become an ASX dividend powerhouse.

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JB Hi-Fi Limited (ASX: JBH) shares had a great day today, rising 2.69% by the market’s close to a price of $52.36. That doesn’t quite put the JB share price near its 52-week (and all-time) high of $55.25, but it’s not far off.

JB shares have been rewarding their owners very handsomely over the past few months. The JB Hi-Fi share price is up more than 22% since 8 December, and up 26.5% over the past 12 months.

Today’s share price moves come after the company released its half-year results this morning for the 6 months to 31 December 2020.

It was a pleasing result for the company. As we covered this morning, JB recorded a 23.7% rise in total sales to $4.9 billion. Earnings before interest and tax (EBIT) were up 76% to $462.8 million and net profits after tax were up 86.2% to $317.7 million. Earnings per share (EPS) also increased by 86.2% to $2.77.

But perhaps the biggest piece of news this morning was JB’s dividend. The company’s management announced that JB will pay an interim dividend of $1.80 per share, fully franked, to be paid on 12 March. That’s a whopping 81.8% increase over last year’s interim dividend of 99 cents per share.

According to the earnings report, that represents a net profit payout ratio of 65%. If we annualise this dividend, it would equate to a yield of roughly 6.9% (or 9.8% grossed-up with the full franking) on the current JB share price.

JB shares deliver the dividend goods

This represents incredible growth for JB’s dividends. Five years ago, the company’s interim shareholder payout was just 72 cents per share, meaning it has grown at a compound annual growth rate (CAGR) of 20.11%.

However, keep in mind that JB’s interim dividends usually come in larger than its final dividends, likely reflecting the strength of the Christmas period for the company. Even so, disregarding this new interim payment, JB’s annual dividends grew from $1 per share in 2016 to $1.89 per share in 2020. That’s a CAGR of 17.25% over those four years.

Many believe that paying out dividends weakens a company because it leaves less money available to reinvest back into the business. Thus, for a company to fund a fast-growing dividend as well as continuing to deliver on key growth metrics, its fundamentals usually need to be rock solid. And JB’s arguably are.

The EPS metric of $2.77 per share that JB gave investors this morning is considerably higher than the EPS of $1.16 it reported back in 2017. That represents a CAGR of 18.97%. So the fact that JB has been managing to grow its EPS by such a fat rate is probably why JB shares continue being able to bring home the bacon for their dividend investors.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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