In the world of investing, it's often said that 'buy low, sell high'. But what if there's a way to do the opposite? To buy high and still reap the rewards? That's the strategy I'm advocating for with the ASX dividend stock, Nick Scali Ltd (ASX: NCK).
Nick Scali has seen a 37% decline in its share price in the last six months, which might seem like a red flag to some. But from my perspective, this is a golden opportunity. I think the company's current situation is a prime example of what I call 'buying the dip' – a strategy that can lead to significant gains in the long run.
The Dip: A Buying Opportunity
The first thing that immediately stands out is the timing of this decline. Volatility in retail shares is not uncommon, especially with the ever-changing economic conditions. Higher interest rates can indeed impact consumer spending, and the demand for mid-range furniture may take a hit. But what many people don't realize is that these periods of decline have historically been good times to invest. It's like buying a house during a recession – you get a great deal, and the value of the asset can increase significantly over time.
I personally think that the current economic climate is a perfect storm for Nick Scali. The company's existing store network has proven its resilience, with like-for-like sales growing in reasonable conditions. But the real excitement lies in the store expansion plans. As of December 2025, Nick Scali had 64 stores across Australia and New Zealand, and 46 Plush stores in Australia. The company's long-term goal is to reach 86 Nick Scali stores and between 90 to 100 Plush stores in the ANZ region. That's a significant growth potential, and it's just the beginning.
Expanding Horizons: The UK Market
One thing that makes this particularly fascinating is the company's recent expansion into the UK. After acquiring Fabb Furniture, Nick Scali is rebranding these stores as Nick Scali, and the results are impressive. The UK segment's gross profit margin is rapidly rising, with total January written sales of $6.7 million. Four refurbished stores achieved LFL store written sales growth of 32% compared to the prior corresponding period. This is a clear indication that the company's strategy is working, and the UK market is a goldmine waiting to be tapped.
Dividend Delight: A Growing Payout
Now, let's talk about the juicy part – the dividend. According to Commsec, Nick Scali is projected to pay an annual dividend per share of 68.7 cents in FY26, which translates into a grossed-up dividend yield of 6.1%, including franking credits. And the best part? The dividend is forecast to grow even further by FY28, with a possible annual payout of 76.9 cents per share, resulting in a grossed-up dividend yield of 6.8%. This is a significant return on investment, especially considering the current valuation.
A Cheaper Valuation: A Smart Investment
The ASX dividend stock is currently trading at a much lower valuation. According to Commsec's forecast, the Nick Scali share price is valued at 19x FY26's estimated earnings and 16x FY27's estimated earnings. This is a great time to invest, as the company's growth potential is high, and the dividend payout is attractive. But it's not just Nick Scali that looks good value today; there are other ASX shares that are also worth considering.
In conclusion, the current decline in Nick Scali's share price is a buying opportunity. The company's store expansion plans, growing dividend payout, and cheaper valuation make it an attractive investment. From my perspective, this is a great time to invest in the ASX dividend stock, and I'm confident that the company will continue to grow and thrive in the years to come.
