Which Retailer Should You Buy For Growth and Income? NEXT Plc, Debenhams Plc, ASOS Plc Or plc?

Today, I’m looking at two investing themes: growth and income.  I’ll compare ASOS (LSE: ASC) vs (LSE: BOO) and Next (LSE: NXT) vs Debenhams (LSE: DEB).  I show you how I believe a blended approach of growth and income could reward patient investors over the long term.

Well, here we are in a rather cold February — I’ll wager that the retailers would have rather seen this sort of weather in September of 2014.  A nice cold snap can do wonders for their Autumn offering!  But I’m not thinking about the odd good or bad season here.  I’m looking at where these companies could be in the next three to five years for those prepared to get rich slowly.


First up, Next.  This company is a quality act and the share price reflects this, having almost tripled in the last three years. Whilst you will not see blistering sales growth from this maturing company, we do have razor-sharp focus on shareholder return.  Indeed, it has recently announced a special dividend of 60 pence per share to be paid in May.  This will be followed by three further special dividends of 60 pence should the share price remain above £67.  This is good for a yield of over 5% including ordinary dividends.  This arises from Next’s ability to generate large amounts of excess cash, which it returns to shareholders.


Now for Debenhams.  This is an interesting situation owing to the presence of a sizable position of Sports Direct in the business.  What he intends to do is currently unclear but it is certainly something to watch going forward.  That aside, sales for the all-important Christmas period surprised on the upside with like-for-like sales increasing by 4.9%.  Couple that with a forward PE of just over 10 and a forward yield of 4.5%, and you have the cheapest of the companies being considered today.


Next up is ASOS.  Despite its dramatic share price drop from over £70 to £31 as I type today, this company still trades on an eye-watering forward PE of 67 times earnings!  All this at a time when margins are under pressure from promotions.  But I did say that we were taking a long-term view and this company has never screamed cheap.  Additionally, it is fair to say that ASOS certainly is building its capability to service an ever-expanding customer base.  Once in place and with continued sales growth, I can see this being a mini Amazon in the making.

Last but by no means least —  In a similar style to ASOS, this company has had a significant fall from grace following its Christmas trading update in January.  Despite this drop, it still trades on a forward PE of 20.  But, like ASOS, it has net cash.  In a similar model to ASOS, it plans to increase it presence online and profits are predicted to almost double by the year ending 28th February 2016.  In addition, the management have a strong background in the clothing trade, which could pay dividends going forward.

What’s My Pick?

For me, I don’t mind paying for quality when looking for income, and Next fits the bill perfectly. If forced to pick from ASOS and Boohoo, I’d pick Boohoo.  It’s currently cheaper than ASOS and I think that it can grower more quickly over the next five years.  This blended approach is well worth some further research.

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Dave Sullivan owns shares in Next. The Motley Fool UK owns shares of ASOS. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.