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Retailers post 100% return in 2013

Australia’s retail industry is dead… Or is it? Shareholders who have shrugged off concerns over the immediate demise of brick and mortar retailers have notched up impressive gains. In some instances, of more than 116% in just 12 months.

Investors who backed JB Hi-Fi (ASX: JBH) put aside years of poor consumer confidence and aptly predicted a demand for, what was, a moderately priced company. Despite the gains many still have reason to believe the best is yet to come.

Harvey Norman (ASX: HVN), which has risen 83% in the past year, believes the benefits of increasing consumer and business confidence as well as a proposed crackdown on GST exempted imports, will bode well for top line growth. In addition they believe the full effect of increasing confidence has not yet been realised. “We have not seen a boost to consumer confidence spending post the Federal election but look forward to a good Christmas trading period,” said Chief financial officer, Chris Mentis, upon the announcement of the company’s 3Q sales.

Trading on current earnings of 16, a significant lift in sales might be already be priced in for both JB and Harvey Norman. However based on forecast earnings per share growth of around 10%, Specialty Fashion Group (ASX: SFH) looks to present a compelling investment case for new investors looking to grab a slice of the retail market.

Another trend which is likely to affect all dividend paying stocks, not just the big banks, is a rate cut. Although ANZ has previously predicted no rate cut for 2014, consensus amongst the big banks appears to be that we’re in for two 0.25% rate cuts next year.

Foolish Takeaway

Cutting the interest rate to 2% will spur on investment and spending in non-mining sectors of the economy and could result in companies such as Myer (ASX: MYR) and David Jones (ASX: DJS) outperforming growth forecasts. However this also gives rise to the possibility that investors will go in search of high yielding dividend stocks (such as those above) to substitute poor returns outside of equities. Its important investors consider more than just the dividend yield of stocks before committing to a purchase.

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Motley Fool Contributor Owen Raszkiewicz owns shares in Myer. 

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