The mean analyst forecast for Myer Holdings Ltd (ASX: MYR) in 2015 is for a dividend payout of 13 cents per share, or 8.3% fully franked based on today's share price. A grossed up yield of nearly 12%.
Realistic?
Interestingly, analyst estimates range from 10 cents (6.5% yield) to 16 cents (10.2% yield) per share and earnings per share estimates vary from 14 cents to 19.2 cents. These estimates, based on the predictions of 16 different brokers, suggests that it's likely Myer will be able to deliver a yield of at least 6.5% over the next 12 months on a payout ratio between 60% and 90%.
A good investment?
In my eyes, the most important aspect of an investment decision is whether the underlying company is high quality with sustainable and growing earnings, regardless of the yield on offer. Myer reported total sales growth of 0.1% in the first quarter of the financial year (ending October '14) and like-for-like sales growth of 0.7%.
Analysts note that the like-for-like sales number cannot be taken on face value due to the inflationary impact of refurbished stores opening towards the end of the quarter. The major concern for shareholders is that management noted the all-important women's fashion range underperformed in the first quarter and that changes are necessary in order for the company to achieve expected revenue and profit in the second quarter.
The second quarter of the year, from November through January, has traditionally been Myer's strongest and accounts for roughly 75% of full-year profit. The market has taken a cautious view, pushing the share price down from nearly $2.50 in September to today's price around $1.55.
Myer is battling against weak consumer sentiment, cheaper online storefronts, low customer wage growth and a generally soft retail environment.
Long-term returns questionable
Over the long term it's hard to imagine that Myer can maintain its share of the Australian discretionary shopping market. International competitors are entering the market and online rivals continue to steal market share even though the Australian dollar has fallen over 10% lately. Lower market share will hit earnings, which will hit dividends, implying that Myer's yield is not sustainable over the long term (unless things change significantly).
