Nick Scali is one of the ASX dividend shares with a large yield.
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There are some ASX dividend shares that have relatively low valuations, or low price/earnings ratios. This helps them deliver quite high yields for investors.
Some businesses in the retail sector trade at a lower earnings multiple compared to other sectors, so it can be a fertile place to look for income opportunities, such as these:
Nick Scali Limited (ASX: NCK)
Nick Scali is one of the leading furniture companies in Australia. It operates a national network of showrooms. It has also acquired the business Plush-Think Sofas.
The combined business has around 100 showrooms in Australia and New Zealand, with pro forma revenue of $533 million and underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $153 million in FY21.
Nick Scali likes what it can now offer customers. It has a dual brand strategy targeting a broader customer demographic. Nick Scali believes the enhanced market position provides diversity in its store format, location and geographic exposure.
Management noted that the two brands are highly complementary ‘made to order’ models with similar inventory and working capital profiles. The ASX dividend share says that there are opportunities for further growth, including a new store roll out for both brands in Australia and New Zealand.
The acquisition adds to profit and the company thinks there are material synergies which can be realised after an integration period.
Nick Scali also plans to ramp up the overall online sales, which is expected to help profit over time.
It’s currently rated as a buy by the brokers at Macquarie Group Ltd (ASX: MQG), with a price target of $15.50. On Macquarie’s numbers, Nick Scali is valued at 15x FY23’s estimated earnings with a projected FY23 grossed-up dividend yield of 7.4%.
Accent Group Ltd (ASX: AX1)
Accent is one of Australia’s leading shoe companies, selling through a number of brands (owned and as a distributor) including VANS, Trybe, The Athlete’s Foot, Stylerunner, Skechers, Platypus, Glue, Dr Martens and CAT.
The business is embarking on a large store rollout across various brands. At the end of FY21 it had 638 stores. It’s now expecting to open more than 120 new stores, including new concepts, in FY22. However, it could also close up to 10 stores where sustainable rent cannot be agreed. New stores are reportedly performing strongly.
The business made $25.6 million of sales from vertical and owned brands. It’s targeting at least $70 million of sales in FY22 – since the lockdowns ended its run rate of sales has been around $1.3 million per week.
Digital sales are another part of the equation for Accent. In FY21, digital sales increased by 48.5% and made up 20.9%. These sales come with attractive profit margins. The ASX dividend share is targeting 30% of sales to be digital over time.
It has signed a number of new distributions recently including Herschel, Hoka, Timberland Pro, Autry and Reebok.
Based on estimates on Commsec, the Accent share price is valued at 14x FY23’s estimated earnings. The projected grossed-up dividend yield for FY23 is 8%.
Should you invest $1,000 in Nick Scali right now?
Before you consider Nick Scali, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Nick Scali wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
*Returns as of August 16th 2021
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 Accent Group and Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.