While shares in Card Factory (CARD) continue to suffer a post-referendum malaise, we think the excellent cash generation boasted by the UK's leading greeting-cards retailer along with its defensive end market means it will continue to dole out generous dividends. Indeed, since the company floated just over two years ago dividends have totalled £164m, equivalent to almost a fifth of the current market cap. And importantly, Card Factory has a business model that trumps that of rivals, which means any industry hardship could principally prove an opportunity for it to win market share.
- Significant dividend yield
- Renewed momentum in October sales
- Vertically integrated business model
- Strong cash generation
- High-street footfall concerns
- Margin pressure due to weak pound
The market's Brexit-related concerns about Card Factory were exacerbated by weak trading in August and September as well as nervousness about the impact of the national living wage. However, there are signs that things could be coming good in time for the all important Christmas trading period, with the group recently saying it has seen a sales pick-up in October. This chimes with encouraging data from the Office for National Statistics (ONS) last week. So we don't feel it need be a source of too much consternation that the group recently reported a disappointing 4.4 per cent third-quarter sales rise, which implies a marginal drop in like-for-like sales over the period.