We recently compiled a list of the Top 10 ASX Dividend Stocks Heading into 2025.In this article, we are going to take a look at where Nick Scali Limited (NCK.AX) stands against the other ASX dividend stocks.
Analysts often advise investors to diversify their stock portfolios globally to optimize returns. With this in mind, strong markets should be a key focus. Australia's stock market is expected to perform well in 2025, driven by positive sentiment from potential central bank easing and China's commitment to supporting its mining sector. Year-to-date, the Australian benchmark index has climbed nearly 8%, with a 12-month gain of around 9%. This was buoyed by the strong rally in the US equity markets, drawing increased attention from investors. The growth has also been led by technology and financial stocks, with the banking sector on track for its best performance since 2009. However, mining and energy stocks have faced challenges due to weaker commodity prices.
According to a report by BlackRock, broad Australian equities have been the second most favored investment within iShares' local offerings this year, trailing only broad US equities. As of November 2024, they have attracted nearly $840 million in net inflows.
Banking stocks in the country made a remarkable impression in 2024, with a sectoral index surging over 30%, as of December 18—its strongest performance in 15 years—thanks to prolonged elevated interest rates. However, as the Reserve Bank of Australia gears up for potential rate cuts, banks may encounter earnings pressure due to tighter net interest margins, a crucial measure of profitability, and heightened competition. In addition, Australian lenders rank among the priciest globally, with the sector's price-to-earnings ratio outpacing that of their international counterparts, as per Bloomberg data.
Analysts suggest that Australian resource stocks could gain from Beijing's promise to boost government spending. However, local mining shares are heading for their weakest performance since 2015, weighed down by the ongoing slump in China's property market, which continues to impact commodity prices. Morgan Stanley analysts including Rahul Anand said the following in a Dec. 15 note:
“As the market awaits visibility on tariff risk versus China stimulus benefits, we see opportunities for exposure to resources. Despite higher-than-normal iron ore inventories, steel inventories in China remain lower than 2019 levels creating iron ore restock opportunity.”
The Reserve Bank of Australia (RBA) projects that economic growth in Australia will rise modestly to about 1% by the close of 2024 and reach its typical pace of around 2.5% by late 2025. This recovery is expected to be largely driven by government spending, which has provided stability to the economy as higher interest rates have dampened private consumption. Analysts suggest that index investing offers an effective and efficient way to tap into the Australian market’s growth potential. S&P Global data revealed that nearly 70% of actively managed Australian equity funds have lagged behind the benchmark index over a three-year period. Over a 10-year timeframe, the disparity is even greater, with over 80% of managed funds underperforming the index. While active stock picking can complement a portfolio, they argue that tracking the benchmark might be one of the best strategies for investors seeking straightforward, long-term exposure to the growth of the local equity market.
Our Methodology:
For this list, we used a screener to identify ASX stocks. From there, we selected dividend stocks with strong histories of regularly rewarding shareholders with dividends. Then, we picked the top 10 stocks with the highest dividend yields as of December 25. The stocks are ranked in ascending order of their dividend yields.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A mid-sized warehouse filled with furniture and home appliances.
Nick Scali Limited (NCK.AX)
Dividend Yield as of December 25: 4.50%
Nick Scali Limited (NCK.AX) is a retailer that specializes in premium furniture. It designs, imports, and sells a wide range of high-quality furniture, including sofas, chairs, tables, and home décor items. The company, established more than 60 years ago, has grown into one of Australia's largest retailers and importers of high-quality furniture. The company remains committed to expanding its success while honoring the legacy of its founder. Each year, Nick Scali Furniture imports over 5,000 containers of premium leather and fabric lounges, along with dining and occasional furniture. In the past 12 months, the stock has delivered a 23% return to shareholders.
In FY24, Nick Scali Limited (NCK.AX) reported strong earnings. The company's revenue of A$468.2 million, down 7.8% from the same period last year. However, Australian and New Zealand (ANZ) written sales orders totaled $447.4 million, reflecting a 2.4% increase compared to FY23. The gross margin for the ANZ region reached 66.0%, which was a 2.5% improvement over the previous year. The company also completed the acquisition of Fabb Furniture in the UK on May 8. This acquisition resulted in the addition of 20 stores to the company's network. As of June 30, 2024, cash and bank deposits amounted to $111.3 million.
As a dividend payer, Nick Scali Limited (NCK.AX) has a solid cash position. In FY24, the company generated $87.1 million in cash from operating activities, after accounting for operating lease and interest payments, compared to $89.8 million in FY23. Property and other capital investments totaled $28.1 million, up from $12.9 million in FY23. This included $16.6 million for construction and $2.4 million for the fit-out of a new distribution center in Queensland. The directors declared a fully franked final dividend of $0.33 per share. Including the interim dividend, this results in a payout ratio of 69% for FY24, compared to 60% in FY23.
Nick Scali Limited (NCK.AX) is one of the best dividend stocks on our list as the stock supports a dividend yield of 4.50%, as of December 25.
Overall NCK.AX ranks 5th on our list of the best ASX dividend stocks heading into 2025. While we acknowledge the potential of NCK.AX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NCK.AX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
