Over the past 10 years, shares in Next (LSE: NXT) have moved up 36%. So the Next share price has outperformed the wider FTSE 100 index during that period.
In contrast, the retailer’s dividend yield of 2.2% is well below the FTSE 100 average, which is currently 3.5%.
So, did I miss out by not buying Next shares a decade ago? Might it make sense for me to add the stock to my portfolio today?
Strong long-term business performance
The fact is that Next has actually done far better than many rivals in the past decade.
My own forays into rag trade shares have been disastrous. My boohoo shareholding is badly under water (meaning it is worth less than I paid for it – and unlike Next it does not pay a dividend).
Owning shares in Superdry just left me super high and dry when the company was delisted after enormous value destruction.
I fared better with Burberry (a luxury pick), although its shares have also seesawed in the past several years.
I actually reckon Next is one of the better players in its space. It has a strong brand that it has managed to keep relevant even amid relentlessly shifting consumer tastes and style trends.
It has managed the move to digital very well while maintaining a high street presence.
The company is well-run and has a proven business model. It expects to report profit before tax for last year just north of £1bn.
Smart investors choose a winning company in a winning industry
But while Next strikes me as one of the better looking listed companies in British clothing retail, I have no plans to buy its shares.
I think it makes sense as an investor to try and go for great companies – but ideally in great industries. Next is one of the better British clothing retailers, but that is a business area that seems to face one hurdle after another.
Tastes change, supply chain costs have soared, pricing is increasingly undercut by fast fashion rivals, high street rents and business rates have increased, the budget added on substantial new employee and taxation costs… the list is almost endless.
I reckon a number of those disadvantages are not only here to stay but could get worse.
Just as the UK grocery market has seen profit margins shrink over the past couple of decades due to intense competition, I see ongoing margin pressure for mass market fashion retailers like Next.
I missed out, but won’t be buying now
If I had bought Next shares a decade ago, I would now be quids in, thanks both to share price growth and a steady flow of dividends.
Looking forward, though, while I still like the company’s prospects, I think sectors other than clothes retailing could be more rewarding.
I have not abandoned the rag trade altogether: I still hold my boohoo shares and have been actively building my stake in JD Sports.
If the Next share price dropped to what I thought was a bargain level, I would reconsider buying into it. For now, though, I will leave it on the shelf.
