ASX retail stock Shaver Shop Group Ltd (ASX: SSG) isn't the first name people usually think of when it comes to high dividend yield. It's a small-cap share, which means many investors might instinctively consider it too risky to add to their portfolio. Plus, it's operating in a retail sector that's recently been beaten down by inflation, high interest rates, and lower consumer confidence.
And yet, despite all this, Shaver Shop raked in an annual net profit of $15.1 million in FY24 (for the 12 months ended 30 June). It also paid out fully franked dividends of 10.2 cents per share for the year – consistent with FY23. Given its share price is currently around $1.225, this means it has a trailing dividend yield of more than 8.2%.
That's significantly higher than many of the more well-known ASX blue-chips investors typically buy for income. For example, global mining giant Rio Tinto Ltd (ASX: RIO) has a yield of 5.1%, leading insurance company QBE Insurance Group Ltd (ASX: QBE) has a yield of 4.4%, and big four bank Commonwealth Bank of Australia (ASX: CBA) has a yield of 3.5%.
So, how is a little retail stock like Shaver Shop able to pay a higher yield than these mature large-cap companies? And why is it a stock I'm thinking of holding for decades to come?
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How does Shaver Shop have such a higher dividend yield?
Shaver Shop pays a very high portion of its net profits out to shareholders as dividends. In FY24, it had a dividend payout ratio of about 88% (meaning it paid out 88% of its net profit as dividends and retained 12%).
For some context, Rio Tinto has a practice of paying out 50% of its earnings as dividends to shareholders. This should give you an indication of just how high Shaver Shop's payout ratio is!
Of course, paying such a high proportion of revenues to shareholders as dividends has a drawback — it means the business retains less earnings as cash to fund future growth opportunities.
However, this doesn't seem to have hurt Shaver Shop too much. Its cash position has improved significantly versus pre-COVID.
In FY19, Shaver Shop had net debt of $6.4 million on its balance sheet, whereas it now has cash of $13.1 million and no debt. And this came despite its dividends increasing by 126% over the same timeframe!
This should give shareholders faith that Shaver Shop can continue to sustain dividends at this level for many years to come. And, the company was even able to accumulate a small war chest to invest in growth opportunities, despite its high payout ratio.
How about the financials?
Shaver Shop generated $15.1 million in net profit from $219.4 million in sales in FY24. While that net profit figure was admittedly 10% lower year-on-year, it was delivered despite particularly challenging retail market conditions.
The business underperformance was also weighted heavily towards the first half, with sales in the fourth quarter of FY24 up 0.8% versus the same quarter in FY23. This suggests that the business has stronger momentum heading into FY25.
One of the other notable takeaways from Shaver Shop's FY24 results was how well the company managed its expenses. Despite inflationary pressures, Shaver Shop kept year-on-year cost growth to just 0.7%.
Employee costs rose with inflation – however, Shaver Shop was able to offset these increases by tightly controlling its marketing and advertising expenses.
Why I'd hold Shaver Shop stock for decades
With a market capitalisation of just $130 million, Shaver Shop is still only a small-cap stock. Generally speaking, small-cap stocks are classified as high-risk and tend to have particularly volatile share prices.
However, the Shaver Shop share price has remained remarkably consistent over the past few years – and there are plenty of good reasons to argue that it's actually lower risk than your typical small-cap growth stock. Despite its small market cap, this makes it a dividend share income-seeking investors should still look closely at.
For one, Shaver Shop was founded all the way back in 1986. It's not some up-and-coming tech stock that's yet to post a profit. This is a company that has delivered consistent profits and has been operating for almost 40 years.
It's also a market leader in men's and women's grooming products with a significant presence. It has a retail network of 123 stores located across Australia and New Zealand.
And, it has no debt on its balance sheet, which means that it isn't financially exposed to interest rate hikes – another reason that it was able to manage its costs so effectively in an inflationary environment.
