At the current Nick Scali Limited (ASX: NCK) share price, investors can grab a bargain and get a much larger dividend yield.
When a share price falls, it can significantly boost the dividend yield on offer. When a share price falls 10%, the yield is boosted by 10%. For example, if the business has a dividend yield of 5% and the share price falls 10%, the dividend yield becomes 5.5%.
But the Nick Scali share price has fallen much further. In the past year, it has dropped 41%. That has had a big impact on the potential dividend payout in the coming years.
We shouldn't just think of Nick Scali as a cash-paying machine, but it has impressive passive income credentials. So, before getting to the earnings growth part, let's look at the potential dividend payments from the business.
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Dividend credentials
Nick Scali has been paying dividends to shareholders for more than 13 years. Most years in the past decade or so have seen the company increase its payout, though that's not always going to happen.
In FY26, the business did increase its annual dividend per share by 30% to 78 cents. That translates into a current grossed-up dividend yield of 8.1% at the time of writing, including franking credits.
However, difficult trading conditions could mean that the business isn't able to maintain its payout in FY27. It's currently projected to pay an annual dividend of 65.7 cents – that currently translates into a grossed-up dividend yield of 6.8%, including franking credits.
Following that, the projection suggests that the business could pay an annual dividend per share of 74.2 cents in FY28 and 84.3 cents in FY29. That translates into forward grossed-up dividend yields of 7.7% and 8.7%, including franking credits, respectively.
On the dividends alone, I think Nick Scali can provide good passive income returns.
Store network growth potential
I think that Nick Scali is a great furniture retailer, and it still has plenty of growth potential left by expanding its global store network.
At July 2026, it had 114 stores in Australia and New Zealand across its Nick Scali and Plush store networks. The business thinks it could reach between 180 and 200 stores across ANZ in the long term. That implies growth of between 58% and 75% in the long term.
Its UK store network was 18 stores as of July 2026, but management currently thinks the UK network could reach between 60 and 70 stores, representing a possible rise of at least 230% from where it is right now.
Adding more stores could bring significant benefits in the years ahead.
Rising profit margins
I believe one of the best reasons to like Nick Scali shares is because I expect its profit margins to increase, particularly thanks to the UK.
In FY26, Nick Scali said its revenue grew 4.3% to $516.7 million, and the gross profit margin improved 2.1 percentage points to 65.6%, helping net profit after tax (NPAT) grow by 22.1% to $75.7 million.
The UK market is seeing top-selling ANZ items perform well in the UK, which I think bodes well for other Nick Scali products in that market. The UK gross profit margin improved by 13.2 percentage points to 60.3%, which is a huge increase in just one year.
Even if revenue doesn't grow a huge amount, rising profit margins could make a big difference to the bottom line in the years ahead.
I think the Nick Scali share price is a buy, not just for the dividend yield, but also for the potential bounce-back after the current challenging retail conditions.
