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Big Lots dividend cut? BIG stock price drifting as mounting losses put shareholder pay-out at risk

By David Burrows

09:57, 4 October 2022

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BIG
Big Lots
17.14 USD
-0.05 -0.290%

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Trader on NYSE. Photo: Getty
Trader on NYSE. Photo: Getty

It is over a month now since US home discount retailer Big Lots (BIG) revealed its latest earnings report.  

At the end of August, Big Lots reported a second-quarter adjusted earnings per share loss of $2.28 due to a year-over-year sales decline and significant cost pressures.

Net sales were down from $1.45bn for second quarter 2021, to $1.34bn for second quarter 2022. Gross margins were down too and a quarterly dividend of $0.30 was declared – unchanged from 2021 and 2020.

Following the Q2 earnings report, Big Lots’ share price has taken something of a hammering.  From a $24 level, the stock price has fallen to the current $15.60 level.  

This was the continuation of a downward trend over the year – at the beginning of October 2021, the stock stood at around $45.

Big Lots (BIG) share price chart

Shares in Big Lots soared during the pandemic as lockdowns provided a boost for hyperstores with a strong online presence. The business (and its share price) continued to move in the right direction supported by the post-pandemic economic boom in 2021.

But as the numbers in second quarter 2022 indicate, the climate has changed and Big Lots is feeling the impact of nervous consumers aware of rising costs and global recession.

And the dramatic fall in share price is now persuading market watchers to consider Big Lots as a ‘yield trap’ - that is a high-yielding stock with high dividend cut risk.

If conditions for the retail sector remain as they are (or even worsen), the board of directors at Big Lots may feel impelled to either cut or suspend its 30% quarterly dividend payment.

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US30

33,541.00 Price
-0.170% 1D Chg, %
Long position overnight fee -0.0164%
Short position overnight fee 0.0059%
Overnight fee time 22:00 (UTC)
Spread 3

US100

11,458.30 Price
-0.830% 1D Chg, %
Long position overnight fee -0.0164%
Short position overnight fee 0.0059%
Overnight fee time 22:00 (UTC)
Spread 1.8

HK50

19,181.00 Price
-1.040% 1D Chg, %
Long position overnight fee -0.0295%
Short position overnight fee -0.0149%
Overnight fee time 22:00 (UTC)
Spread 6.0

US500

3,924.40 Price
-0.430% 1D Chg, %
Long position overnight fee -0.0163%
Short position overnight fee 0.0059%
Overnight fee time 22:00 (UTC)
Spread 0.7

Dividend under pressure?

While this may have seemed unthinkable a year ago, economic conditions and an evident share price slide suggest this might indeed materialise.

Danni Hewson, financial analyst at AJ Bell accepts the argument but is not convinced things are as dark for Big Lots as some believe.

“Big Lots has had a tough year and there’s little doubt the cost of living crisis hasn’t finished with the retail sector just yet. But this is a business that’s fully aware of the challenges it faces and has been making changes to its inventory to better serve its customers.”

Hewson points to the fact that Big Lots recently teamed up with Door Dash to make it easier for shoppers to get all their bargain essentials delivered where they want it, when they want it, and at the price they want to pay.

“With lots of people taking on extra hours or extra jobs to make ends meet that kind of service will be a real boon. But the next months will be hard and it’s unclear if the discounter will be able to attract enough wealthier shoppers trading down to make up for the paring back from their core customer”

However, she stresses that this is a business which doesn’t see much fluctuation in core ownership, partly thanks to its dividend.

“It didn’t cut dividend payments during the pandemic and it’s unlikely to make that kind of move in the near term but investors need to pay close attention to both outlook and margins when the company gives its next trading update.”

Broker sentiment toward Big Lots is currently mixed – Marketbeat shows that of eight analysts, four rate Big Lots a ‘hold’ and four a ‘sell’ – with a consensus price target of $20.50.

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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