With a 7% dividend yield, is it time to buy JB Hi-Fi stock?

Is this retailer a bargain?

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Owners of JB Hi-Fi Limited (ASX: JBH) stock have been enjoying healthy dividends for some time.

The company might pay a grossed-up dividend yield of 7% over the next 12 months. So, could this be the right time to invest in the ASX retail share?

JB Hi-Fi operates stores across Australia and New Zealand, and it also owns The Good Guys.

The company has experienced plenty of volatility since the start of 2020, as we can see in the chart below. And since March 2022, the JB Hi-Fi share price has fallen more than 10%.

Recent financial performance

JB Hi-Fi recently gave a sales update for the first quarter of FY24, which it said was in line with its expectations where it was cycling the elevated period from last year.

In the three months to September 2023, it advised that JB Hi-Fi Australia sales were down 0.1%, JB Hi-Fi New Zealand sales were up 1%, and The Good Guys sales were down 12.2%. The company said it continued to see variability in category performance.

It's understandable that some households aren't buying the same amount of consumer goods as they were during the COVID-19 pandemic, in my opinion.

Is this a good time to invest in JB Hi-Fi stock?

The company is more defensive than I think some investors give it credit for. A lot of households and businesses may view their phones and laptops as essential items to buy because of what we need them to do – work, education, communication and entertainment. Plus, households still need appliances, and the company is a beneficiary of Australia's growing population.

If you walk through a JB Hi-Fi store, it's impressive how much is being sold in that sized store – it is a strong retail operation.

A key question is how far will earnings drop in FY24. The JB Hi-Fi stock price hasn't fallen much, so investors don't seem to be expecting a profit slump.

Broker UBS points out that the ASX retail share is looking to grow in New Zealand, though beyond that its growth may be limited to population growth, market share performance and category. But, the broker says the business has a low price/earnings (P/E) ratio and "an attractive dividend yield".

Based on its estimates for JB Hi-Fi stock, it's valued at 14x FY24's estimated earnings with a grossed-up dividend yield of around 7%.

Foolish takeaway

I think JB Hi-Fi is a great retailer, though UBS is 'neutral' on the business, and I'd say I'm at a similar rating.

The JB Hi-Fi stock price has dropped to $42 a number of times over the past 12 months. At $47.59, it's currently close to its 52-week high, though it's still on a low earnings multiple.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Jb Hi-Fi. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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