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.


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 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.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended 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.

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