MENU

Should you buy Asaleo Care Ltd shares for its monster dividend yield?

One of the worst performers on the market today has been the Asaleo Care Ltd (ASX: AHY) share price.

In late trade the personal care company’s shares are down 5% to $1.44 following the release of a weak full-year result.

According to the release, Asaleo Care delivered a net profit after tax of $59.4 million on revenue of $585.8 million. This was a decline of 8% and 3%, respectively, on the prior corresponding period.

Earnings per share came in at 10.9 cents, down 5.2% year-on-year. The company opted to maintain its dividend at a partially-franked 10 cents per share.

Although the company’s Tissue segment performed well, this was offset by a challenging year in the Personal Care segment.

Tissue segment EBITDA rose 8.5% to $69.2 million, but Personal Care segment EBITDA tumbled 17.7% to $55.1 million. This was blamed on weakness in its feminine care and baby care categories.

The feminine care category suffered from an increasingly price competitive environment, whereas the baby care category was hit by the loss of private label business and issues associated with the commissioning of the upgraded nappy machine. The latter issue has been resolved now.

Outlook.

FY 2018 looks likely to be another year of disappointment for shareholders. Management has advised that it expects EBITDA in the range of $113 million to $119 million. This compares to FY 2017’s $124.3 million, which itself was down 4.9% from $130.7 million in FY 2016.

Should you buy the dip?

Whilst Asaleo Care’s shares change hands at a lowly 13x earnings and provide a very generous trailing partially franked 6.9% dividend, I would suggest investors stay clear of it.

Earnings are expected to go backwards yet again next year, which will almost certainly put pressure on the company to cut its dividend. Which would be very bad news as I believe this monster dividend yield is the only thing keeping its shares from cratering lower.

In light of this, I think investors should focus on fast growing companies in the retail sector such as Kogan.com Ltd (ASX: KGN)Lovisa Holdings Ltd (ASX: LOV), or Noni B Limited (ASX: NBL) instead.

Alternatively, this dividend share could be a much better option for investors than Asaleo Care.

OUR #1 dividend pick to grow your wealth over the new financial year is revealed for FREE here!

Financial year 2018 is here and The Motley Fool's dividend detective Andrew Page has revealed his must buy dividend share to grow your wealth in 2018.

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Kogan.com ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.