I love the ASX dividend stock Nick Scali Limited (ASX: NCK). I think it's one of the most underrated dividend machines on the ASX.
Many readers may already be aware of Nick Scali – it's a retail company that sells high-quality furniture to Australians and New Zealanders.
Nick Scali is one of Australia's largest importers of quality furniture, bringing around 12,000 containers of furniture to the country each year. It claims to have the best value furniture around.
First, let's address the passive income power of this ASX dividend stock.
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Impressive ASX dividend stock credentials
Nick Scali has increased its annual dividend per share each year since 2013, so the company has a decade-long consecutive annual dividend growth record. Not many ASX businesses can match that.
The company's dividend payout in 2013 was 12 cents per share. It paid 75 cents per share in 2023 – an increase of 525%!
Nick Scali clearly has a track record of wanting to grow dividend payouts for shareholders.
Using the latest payout, the ASX dividend stock has a trailing grossed-up dividend yield of 8.3%.
However, it must be said that the FY24 annual dividend per share and profit is expected to fall amid the challenging economic environment. It's understandable that furniture purchases may be reduced at a time of high cost of living and elevated interest rates.
Despite that, the estimate on Commsec suggests the Nick Scali grossed-up dividend yield could be 6.2%.
Potential to beat the share market
Both the Nick Scali share price and the S&P/ASX 200 Index (ASX: XJO) have rallied in the last few months. From its current valuation levels, I think Nick Scali has a great chance of beating the ASX 200 return.
For starters, Nick Scali shares are still around 20% lower than their all-time high from November 2021, so investors recognise the difficult environment the company is facing.
I don't think weak retail conditions are going to last forever. When conditions improve, it could mean good news for profitability and investor sentiment in the company.
I'm not expecting any interest rate cuts in Australia for at least the first half of 2024. But when the cuts do eventually come, it could mean a recovery for housing construction and another boost for Nick Scali shares.
The ASX dividend stock continues to grow its store network, expanding its reach with customers.
At the end of June 2023, it had a store network of 107 Nick Scali and Plush stores. Based on demographic data and proximity to existing showrooms, it has identified target locations for Plush to operate a store network in the long-term of between 90 to 100 stores, while Nick Scali could have a store network of up to 86 stores.
The ASX dividend stock has also finalised plans for new larger distribution centres in Western Australia and South Australia to be completed during FY25 to support store growth. It's also buying properties so that it owns some of the locations it operates from.
As long as the business has a sizeable amount of stores to roll out, I think it has plenty of growth ahead. There is also a good chance it could expand overseas into a market like the United Kingdom.
According to Commsec, the Nick Scali share price is valued at 14x FY24's estimated earnings.
