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July 11, 2012 at 07:00 AM EDT
RadioShack (RSH) Dividend Analysis – Too Good To Be True?
The other day, 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 [...]

The other day, 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

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

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?


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