Footwear retailer Accent Group Ltd (ASX: AX1) is a stock I've regularly recommended to readers and dividend seekers since I first picked up some shares for 59.5 cents on May 30 2017.
Since then the stock has gone onto pay me 14.5 cents in dividends (on a cost basis yield of 25%) and climbed nearly 150% in value, although I expect it's still a good bet for dividend seekers today.
Why?
While the stock is not as cheap as it was in May 2017 the company has managed to deliver the profit growth I expected and has a decent chance of delivering more growth into the future thanks to a strong management team.
The recent profit growth means the valuation is not excessive on 12.9x annualised earnings per share, with the group forecasting at least 10% EBITDA (operating income) growth over the second half of FY 2019.
However, we should note that the first half of the fiscal year includes the Christmas shopping period that is traditionally the strongest for Accent, so taking into the account company's forecasts and the H2 FY18 earnings result it's more likely the group delivers around 10 cents per share in earnings over FY 2019.
This would place it on 14.6x its $1.46 share price, which still seems reasonable given the group is delivering growth despite the poor retail conditions in Australia.
In other words we could assume the period July 2019 through July 2021 may see no worse retail conditions, and Accent is already performing well by growing its margins, online sales, and number of operating stores.
It's also worth noting that footwear (i.e. trainers, smart casual shoes) is not as discretionary as other apparel items as everyone needs shoes at the end of the day.
Dividends
The group's interim dividend payment of 4.5 cents per share (plus full franking credits) also suggests management is confident of a strong second half as I expect it will want to come close to matching this in its final payout. The stated dividend policy is to pay out 75% to 80% of profits as dividends, so 4 cents a share may be possible depending on performance and other factors.
As such the stock offers a bumper 5.8% yield assuming my forecast for a 4 cents per share final dividend comes about, while forward-thinking investors should consider the prospect of marginally higher dividends through FY 2020.
The group carries net debt of just $31 million, which is small compared to half-year EBIDTA of over $50 million and gives investors some certainty over how shareholders' interests are aligned with the company's.
As such I'd probably rate the stock a buy under $1.50, although I'd suggest investors tread carefully around the retail space in Australia. The only other retailers on the ASX I own are the a2 Milk Co. Ltd (ASX: A2M) and Blackmores Limited (ASX: BKL), with the latter proving a doozy so far.
As such investors can take it that currently I wouldn't rate any other retail shares on the ASX as buys.
