The S&P/ASX 200 Index (ASX: XJO) Metcash Ltd (ASX: MTS) share price fell this week to a 52-week low. In this article, I'm going to talk about why I rate the company as a buy.
Metcash is an interesting business – it supplies IGA and Foodland supermarkets around the country. It also supplies independent liquor stores in Australia including IGA Liquor, Bottle-O, Cellarbrations, Porters Liquor, Thirsty Camel and Duncans.
It also has a growing hardware division with the brands Mitre 10, Home Timber & Hardware, Total Tools and it supports Thrifty-Link Hardware and True Value Hardware operators.
Here are three key reasons why I think it's a good buy today.
Better Metcash share price valuation
Metcash is the type of blue-chip business I expect to be around for many years to come, so being able to buy it at a cheaper price is attractive to me during short-term market fears.
Since April 2022, the Metcash share price has dropped 27% and it is down close to 20% in the past year.
UBS has forecast that profit can steadily improve between FY25 to FY28, which would be a tailwind for the Metcash share price and possibly the dividend.
Ongoing revenue growth
I was pleased to see that revenue continues to grow. In the first four weeks of the second half of FY24, total sales went up 0.8%.
For me, most importantly in the early part of the second half, total hardware sales were up 2.4% and Total Tools sales went up 6.2%.
Revenue (growth) normally has a key influence on the profit, so it's a longer-term positive to see revenue climbing. It's pleasing to see the company saying there is higher foot traffic at IGA stores.
I think this ASX 200 share can be one of the beneficiaries of Australia's growing population, with more mouths to feed and more homes needed to be built.
Metcash has a fairly low P/E ratio and typically has quite a generous dividend payout ratio, resulting in a pleasing dividend yield, which can mean decent cash returns regardless of what the Metcash share price is doing amid volatility.
In the FY24 half-year result, it declared an interim dividend per share of 11 cents. Another payout of 11 cents in six months would mean a grossed-up dividend yield of 8.9%.
UBS has a more conservative projection of 20 cents per share for FY24, which would be a grossed-up dividend yield of 8.1%.
Metcash is one of my favourites when it comes to high-yield ASX dividend shares. I'm optimistic about the long-term, particularly with the hardware earnings.