Why I think Lovisa stock is an amazing ASX 200 buy for both dividends and growth

I think this is a sparkling opportunity.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Lovisa Holdings Ltd (ASX: LOV) stock is a really attractive investment to me for both its dividends and growth. The S&P/ASX 200 Index (ASX: XJO) share has plenty of pleasing characteristics, which I'll explore in this article.

Lovisa sells affordable jewellery to younger shoppers.

A young woman wearing a silver bracelet raises her sunglasses in amazement, indicating positive share price movement in jewellery shares.

Image source: Getty Images

Strong profitable growth

Investors often like to judge a company based on profit and how much it's expected to make. In FY23, on a 52-week comparative basis, Lovisa grew net profit after tax (NPAT) by 20.1% to $68.2 million.

A key part of Lovisa's growth (and that of almost any ASX 200 share) is revenue growth. Store count growth is a large driver of revenue growth. In FY23, Lovisa's revenue rose by 33.1% on a 52-week basis, and the store count grew by 27% (or 172 stores) to 801 stores.

A lot of those new stores have been open for less than a year, so a full 12 months of operations will add to revenue and profit. Opening a new store or entering a new country comes with costs before any revenue flows in. It's an upfront investment but well worth it.

Lovisa entered a number of new markets in FY23, including Hong Kong, Taiwan, Namibia, Botswana, Spain, Italy, Hungry, Romania, UAE and Mexico. In FY24, it's entering markets like China and Vietnam. The longer the growth runway, the more it can help Lovisa stock.

At the end of FY23, it had 195 stores in Australia and New Zealand out of a global total of 801.

The company could open a significant number of potential stores in the next decade.

For now, I'm just working on the premise that Lovisa can roughly double its store count over the next five years. This could boost its revenue and profit by roughly double, particularly if operating leverage can help with its growing store count. This would then be very supportive of Lovisa's stock price, in my opinion.

Great dividends

If revenue and profit can continue to grow at the rate I think it might, there could be a lot of scope for the dividend to keep growing if it sticks to the same dividend payout ratio.

I'd expect capital growth to make up the larger portion of overall returns over the long term from this ASX 200 share. But the dividends are a welcome boost, particularly if we don't want to sell any shares and still benefit from the profit growth.

In FY23, the company paid an annual dividend per share of 69 cents. That translates into a trailing cash yield of 3% and a grossed-up dividend yield of around 4%.

The dividend may not be as strong in FY24 based on the current retail conditions, but by FY26, it could pay an annual dividend per share of 91 cents (according to Commsec). This would be a potential cash yield of 4% or a grossed-up dividend yield of more than 5%.

At the current Lovisa stock price, I'd be happy to buy some shares for the long term and top up on any sell-offs.

Motley Fool contributor Tristan Harrison has positions in Lovisa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa. The Motley Fool Australia has recommended Lovisa. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Retail Shares

Tradie holding a laptop computer and scratching his head looking confused.
Retail Shares

Are Wesfarmers shares a buy, sell or hold after this week's update?

A large focus on AI was a feature of the recent company briefing.

Read more »

People sitting in rows in a meeting with one person holding their hand up as if to ask a question.
Retail Shares

Super Retail Group outlines 5-year growth strategy and transformation plans

Super Retail Group outlines its five-year growth strategy and transformative cost-saving plans at its 2026 Investor Day.

Read more »

Two happy and excited friends in euphoria holding a smartphone, after winning in a bet.
Retail Shares

How high could Wesfarmers shares go?

Wesfarmers shares are rallying again on Wednesday.

Read more »

An attractive model-like woman holds her hands to her head and gives a shocked and exasperated wide-mouthed expression as though she is hearing unexpected news.
Retail Shares

This newly-listed ASX retail stock could deliver more than 30% upside Morgans says

Investors could be on to a good thing here.

Read more »

Photo of two women shopping.
Blue Chip Shares

Why is everyone talking about Wesfarmers shares this week?

The blue-chip giant is hitting headlines this week.

Read more »

A woman sits on sofa pondering a question.
Retail Shares

5 years ago, $10,000 bought 181 Wesfarmers shares. But how many would it buy now?

The owner of Kmart and Bunnings has been solid for investors.

Read more »

A woman looks at a tablet device while in the aisles of a hardware style store amid stacked boxes on shelves representing Bunnings and the Wesfarmers share price
Broker Notes

Wesfarmers shares: Buy, hold or sell?

Two leading analysts offer their outlooks for Wesfarmers shares.

Read more »

A woman looks quizzical while looking at a dollar sign in the air.
Retail Shares

Why Wesfarmers shares remain the gold standard of ASX retail investing

Down over the past year, Wesfarmers shares have become more attractively priced. The business underneath has barely missed a beat.

Read more »