Why you should say “Myer is my stock”

Because of the rather dubious 2009 float, with its steep initial share price and the underperformance that has naturally followed in the years since, many investors are likely to be skeptical of department store chain Myer (ASX: MYR).

Yes, Myer was a dud stock. But I want to suggest that, today, such a view is out of date.

Why you should take a fresh look

Forget, for a moment, what you think you know about Myer. Now, let me tell you about a preeminent Australian retailer with modest sales growth, best-in-class margins, a manageable debt load, and a store network that’s just the right size. Most importantly, the shares are relatively cheap, at less than 11 times earnings, and pay a dividend yield of 7.2%, or over 10% when grossed up to include franking benefits.

From this perspective – looking at Myer’s situation and valuation today – it’s hard not to think that the shares will outperform the overall market in the next three to five years, and possibly beyond. The dividend alone will get investors the best part of the way to an average annual market return!

Assessing the core business

Myer operates some 67 stores in prime locations across Australia, with Queensland and Western Australia the best performing markets. The company’s loyalty program – Myer One – has over 5 million members, and 70% of all sales come from those members. Myer also gleans extensive customer data from the program leading to its “increasingly sophisticated” understanding of customer habits and preferences, and which informs all decisions related to stores.

Sales grew 1.7% for the first half of 2013, and third-quarter sales grew by 0.5%. Myer’s growth is outpacing that of David Jones (ASX: DJS), which saw first half 2013 sales growth of less than 1% and negative growth for the third quarter. Myer also boasts significantly greater gross and net margins, in part due to Myer management’s decision to exit lower margin categories and focus on exclusive brands in store – such brands now constitute 20% of sales. Myer’s gross margins have expanded by some five percentage points since 2007.

Online shopping is often cited as a key long-term threat to bricks-and-mortar retailing, but investors must also keep in mind the way it can boost traditional retailers’ margins and results as well. For its part, Myer has made “building a leading omni-channel offering” a strategic priority.

CEO Bernie Brookes, formerly of Woolworths (ASX: WOW), has been in the chair since 2006 and owns nearly 2% of Myer shares, meaning that a significant portion of his personal wealth is tied up in the company and that maintaining the dividend is likely to be an important matter to him.

Foolish takeaway

At current prices, Myer shares present a compelling value. It’s true that there’s no short-term catalyst for a re-rating of Myer shares – there’s little reason to foresee a blowout half coming down the pike soon. Still, patient investors are likely to be rewarded over time between the value price and the hefty dividend. Stick this department store in a diversified portfolio.

Interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy ofThe Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!