Unfortunately it's not simple. Although NCK has high ROE, but...

Unfortunately it's not simple.

Although NCK has high ROE, but its dividend payout ratio is also very high. Over the years, it has slowly crept up from around the 60% mark to 80%, and this year it will be around 100%.

What this means is, the company is unable to reinvest its profit at a level near its ROE, therefore it's returning them to the shareholders in form of dividends.

The company is in a rare and fortunate position of not requiring a lot of capital to open new stores. This is partly due to its negative working capital position, some of the products that they sell are custom made to order and they always receive deposits upfront, up to 8-12 weeks before actual delivery.

In FY2019, when the dividend payout ratio will be around 100%, NCK is still able to open 6 new stores: Morayfield (QLD), Brisbane Airport/Skygate (QLD), Mackay (QLD), Hamilton (NZ), Prospect (NSW) and Craigieburn (VIC).

Prospect & Craigieburn only opened last month (June 2019).

A new store in St. Luke, NZ is going to open this month.

With the recent tax cut passed in parliament, combined with RBA's rate cut + APRA's removal of mortgage rule of 7% interest rate test, the retail market in Australia will have a few more shots in the arm. NCK will no doubt enjoy its fair share and is likely to avoid the doom & gloom prediction put forward by many a few months ago.