I don't know of many sectors where a CEO can stand in front of shareholders and blame something like hot weather for not meeting profit expectations.
It's one reason I prefer to steer clear of retail stocks. They're extremely fickle.
But just like any asset, there's a price for everything and right now, some stocks in the retail sector look seriously cheap.
And it's only a matter of time until consumer confidence comes back and Aussie's are once again hitting stores en masse.
Here're three reasons to be bullish on retail stocks right now.
- Interest rates are down, dividend yields are up. Right now, the retail sector is offering dividend yields of 5.1% whilst the broader S&P/ASX 200 (ASX: XJO) (INDEX: ^AXJO) is yielding 4.6%. Usually, retail stocks pay fully franked distributions, meaning their grossed-up yields are even juicier.
- A falling dollar will increase sales prices. A falling Australian dollar bodes well for those at the petrol bowser, but retailers will be forced to pay more for imported goods. Just like you are I would if we were shopping for US products on the internet. To counteract the higher import costs, in store prices will rise.
- Shares are cheap! Although it's an unpolished valuation metric, the P/E ratio works for comparative analysis. And right now, the retailing sector is trading on P/E ratio of 13.7, whilst the broader market trades on multiple of 15.2. Lower share prices increase dividend yields.
8 big dividend retailers to keep your eye on in 2015
| Company | Market Cap ($m) | Dividend Yield | Fully Franked? | P/E |
| JB Hi-Fi Limited (ASX: JBH) | 1,569 | 5.5% | Yes | 12 |
| Harvey Norman Holdings Limited (ASX: HVN) | 3,753 | 4.1% | Yes | 16 |
| Speciality Fashion Group Ltd. (ASX: SFH) | 142 | 5.6% | Yes | 10 |
| Kathmandu Holdings Ltd (ASX: KMD) | 411 | 5.0% | Yes | 11 |
| Super Retail Group Limited (ASX: SUL) | 1,483 | 5.2% | Yes | 13 |
| The Reject Shop Limited (ASX: TRS) | 182 | 5.2% | Yes | 11 |
| Breville Group Ltd (ASX: BRG) | 905 | 4.1% | Yes | 17 |
| RCG Corporation Limited (ASX: RCG) | 184 | 6.7% | Yes | 14 |
Source: Morningstar.
As can be seen above, the tax effective dividend yields of retail stocks look very tempting, at a time when interest rates on term deposits are offering maybe 3% or 4% – with no franking!
Of the above stocks, I'm paying particularly close attention to Breville Group and RCG Corporation – the owner of The Athletes Foot.
Whilst it could be a rough ride for shareholders in these companies over the next 18 months, their cheap share prices and big fully franked dividend yields will keep investors enthusiastic until consumer and business confidence eventually returns.
However, there's one more ASX retail stock which you should consider, above all, these. It has a juicy 4.5% fully franked dividend, is growing and has heaps of cash on its balance sheet. In fact, it's so good the Motley Fool's top analyst named it his #1 dividend stock pick for 2015!
