My Favorite Dividend Stock to Buy in June

As we enter June, specific macroeconomic trends are taking center stage. Supply shortages are persisting, inflation is rearing its ugly head, economic reopening is changing spending patterns, and uncertainty about the direction of the pandemic has not ended.

eBay (NASDAQ: EBAY) is a company that I think can do well in that economic backdrop. The asset-light business model can protect against rising costs, and eBay is where consumers go when things are sold out everywhere else.

More importantly, eBay has done an excellent job at growing earnings over the past decade, which can sustainably fund its dividend payment. Let’s look closer at why eBay is my favorite dividend stock to buy in June.

A person making an online purchase.

Image source: Getty Images.

eBay has grown earnings at a rapid rate

Indeed, from 2012 to 2021, eBay has grown earnings per share at a compound annual rate of 23.6%. Earnings are vital when determining a company’s ability to pay dividends. Sure, a business could fund dividends out of savings or borrowings, but eventually, these sources would be exhausted. The only sustainable source to fund dividends is profits. In that regard, income-seeking investors can be encouraged by eBay’s robust earnings growth.

In its most recent quarter, which ended on March 31, eBay’s revenue decreased by 6% year over year. The company is losing customers and engagement as economies reopen and consumers shift more of their spending to in-person stores. eBay does not own the inventory sold on its platform and leaves shipping to sellers. The asset-light business model should protect eBay from rising costs plaguing other companies.

What’s more, if supply shortages persist, consumers could look to eBay’s platform for items sold out elsewhere. eBay has both auction and fixed-price formats for sellers. At times, folks who get their hands on things sold out in stores list the products on eBay for a premium or put them in auctions that garner higher prices. Since eBay takes a percentage of transactions as revenue, the increase in activity is good news.

EBAY Payout Ratio Chart

EBAY Payout Ratio data by YCharts

Note that eBay only started paying a dividend in 2019 at $0.56 per share, but it has already increased it twice to $0.64 in 2020 and $0.72 in 2021. What’s more, eBay’s dividend payout ratio (dividends per share divided by earnings per share) was just 4.1% most recently, highlighting that eBay has plenty of room to keep increasing its dividend.

Committed to an asset-light business

Income investors can be further encouraged by eBay management’s continued focus on an asset-light business model. That means the company does not have to plow back earnings into the business. Instead, it can return profits to shareholders through dividends.

From 2011 to 2021, eBay’s total assets decreased from $27.3 billion to $26.6 billion. That means that eBay has taken the billions it has earned in profits and returned it to shareholders. Of course, depreciation could also be attributed to the decrease, but it highlights that management is not investing in fixed assets like fulfillment facilities.

EBAY PE Ratio Chart

EBAY PE Ratio data by YCharts

Fortunately for investors, eBay is not expensive at a price-to-free-cash-flow ratio of 16.6 and a price-to-earnings multiple of 2.7. Inexpensive valuation, robust earnings growth, and an asset-light business model are why eBay is my favorite stock to buy in June.

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Parkev Tatevosian has positions in eBay. The Motley Fool recommends eBay and recommends the following options: short July 2022 $57.50 calls on eBay. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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