At the current Nick Scali Limited (ASX: NCK) share price, investors can grab a bargain and get a much larger dividend yield.

When a share price falls, it can significantly boost the dividend yield on offer. When a share price falls 10%, the yield is boosted by 10%. For example, if the business has a dividend yield of 5% and the share price falls 10%, the dividend yield becomes 5.5%.

But the Nick Scali share price has fallen much further. In the past year, it has dropped 41%. That has had a big impact on the potential dividend payout in the coming years.

We shouldn’t just think of Nick Scali as a cash-paying machine, but it has impressive passive income credentials. So, before getting to the earnings growth part, let’s look at the potential dividend payments from the business.

Dividend credentials

Nick Scali has been paying dividends to shareholders for more than 13 years. Most years in the past decade or so have seen the company increase its payout, though that’s not always going to happen.

In FY26, the business did increase its annual dividend per share by 30% to 78 cents. That translates into a current grossed-up dividend yield of 8.1% at the time of writing, including franking credits.

However, difficult trading conditions could mean that the business isn’t able to maintain its payout in FY27. It’s currently projected to pay an annual dividend of 65.7 cents – that currently translates into a grossed-up dividend yield of 6.8%, including franking credits.

Following that, the projection suggests that the business could pay an annual dividend per share of 74.2 cents in FY28 and 84.3 cents in FY29. That translates into forward grossed-up dividend yields of 7.7% and 8.7%, including franking credits, respectively.

On the dividends alone, I think Nick Scali can provide good passive income returns.

Store network growth potential

I think that Nick Scali is a great furniture retailer, and it still has plenty of growth potential left by expanding its global store network.

At July 2026, it had 114 stores in Australia and New Zealand across its Nick Scali and Plush store networks. The business thinks it could reach between 180 and 200 stores across ANZ in the long term. That implies growth of between 58% and 75% in the long term.

Its UK store network was 18 stores as of July 2026, but management currently thinks the UK network could reach between 60 and 70 stores, representing a possible rise of at least 230% from where it is right now.

Adding more stores could bring significant benefits in the years ahead.

Rising profit margins

I believe one of the best reasons to like Nick Scali shares is because I expect its profit margins to increase, particularly thanks to the UK.

In FY26, Nick Scali said its revenue grew 4.3% to $516.7 million, and the gross profit margin improved 2.1 percentage points to 65.6%, helping net profit after tax (NPAT) grow by 22.1% to $75.7 million.

The UK market is seeing top-selling ANZ items perform well in the UK, which I think bodes well for other Nick Scali products in that market. The UK gross profit margin improved by 13.2 percentage points to 60.3%, which is a huge increase in just one year.

Even if revenue doesn’t grow a huge amount, rising profit margins could make a big difference to the bottom line in the years ahead.

I think the Nick Scali share price is a buy, not just for the dividend yield, but also for the potential bounce-back after the current challenging retail conditions.

The post Is the Nick Scali share price a buy for its 7% dividend yield? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Nick Scali. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

There aren’t too many economic indicators out there right now that indicate that the health of the global economy is tip-top. Inflation across the world remains elevated, oil prices are back over US$100 a barrel, and government debt, particularly in the United States, continues to balloon at an arguably unsustainable rate. I’m not saying that all of this means a recession is on the horizon. But it does, at least in my view, indicate that investors should keep their wits about them over (at least) the rest of 2026.

If you are an investor who is worried about a recession, you might want to focus your investing energy on ASX shares that arguably thrive in all kinds of economic weather. That doesn’t mean that these ASX shares won’t see potentially severe price impacts if there is a recession or stock market crash, of course. But it does mean that the underlying fundamentals of these companies would be relatively unaffected if the worst were to happen.

So with that in mind, here are two ASX shares whose earnings should prove to be a veritable fortress if the global economic weather does take a turn for the worse.

2 ASX shares to ride out a recession

First up, we have ASX 200 telco Telstra Group Ltd (ASX: TLS). Telstra is a company we all know and may or may not love. What we can say with certainty is that Telstra continues to enjoy a status as Australia’s largest and most popular telco. The company boasts what is almost universally regarded as the best mobile network in the country. That’s a moat that allows Telstra to keep many customers in-house and competitors at bay.

The beauty of Telstra’s business model is that it is highly resistant to recessions, inflation, and other economic maladies. Most of us would give up a lot before our mobile phones and internet connections if times got tougher. Telstra’s earnings were unaffected by the COVID recession, and I expect them to emerge from the next economic downturn, whenever that may occur, largely unscathed.

Next, let’s talk about Coles Group Ltd (ASX: COL). Coles is another stock we’d all know well. It is the second-largest supermarket chain operator in the country, and also owns the Liquorland bottle shop chain. Coles shares many of the same attributes as Telstra. It is highly defensive (we all need to eat, drink, and stock our households), for one. For another, it is resistant to inflation, given it is one of the lowest-cost providers of those consumer staples on the market.

As such, I wouldn’t expect to see much in the way of earnings impacts if bad economic weather hits the Australian economy. Coles’ hefty, fully-franked dividend (which the company has increased every year since 2018) provides some further certainty to investors.

The post Worried about a recession? These ASX shares would be just fine appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

ASX small-cap shares are often some of the most exciting ideas to buy because of how they may be undervalued relative to their potential.

Many of the largest companies have reached a mature stage where revenue growth is now fairly subdued. Smaller companies are much earlier on in their growth journey, so there’s much more compounding potential for earnings to grow in the future.

The business I’m going to highlight today is Beacon Lighting Group Ltd (ASX: BLX). It’s one of the top picks inside the investment portfolio of WAM Microcap Ltd (ASX: WMI), a listed investment company (LIC) that targets some of the smallest ASX stocks to generate returns for shareholders.

The WAM investment team recently highlighted why they think the business is an opportunity.

Accelerating sales momentum for the ASX small-cap share

The Beacon Lighting share price has taken a bit of a beating in recent times; it’s down by 42% over the past year, at the time of writing.

At this lower price, it could be undervalued, and WAM is attracted to the specialist residential and commercial lighting retailer.

In August 2026, the Beacon Lighting share price rose strongly (up 18.7%) after the release of its FY26 results.

That 2026 annual report showed record underlying sales of $340.3 million and continued momentum across its growing trade division.

FY26 trade sales grew by 14.5% during the year and represented more than 43% of relevant sales, which highlighted the “success of the company’s strategy to expand its exposure to commercial customers”.

The WAM investment team also noted that the Beacon Lighting share price responded positively to accelerating sales momentum, with comparable store sales increasing 7.1% in the fourth quarter of FY26.

Wilson Asset Management said that this momentum has continued into the start of the 2027 financial year.

The fund managers and analysts overseeing WAM Microcap remain positive on Beacon Lighting Group’s outlook, citing its strong balance sheet and multiple growth opportunities, including store expansion, digital initiatives, and increased trade penetration.

What is the Beacon Lighting valuation?

According to the projection on CMC Invest, the ASX small-cap share is valued at 14 times FY27’s estimated earnings. The business is also projected to pay an annual dividend that equates to a dividend yield of 4.25% excluding franking credits and 6.1% including franking credits.

The forecast on CMC Invest suggests the business could see further earnings growth in FY28, with potentially 10% profit growth. The dividend could also increase again.

At those valuations, I can see why WAM thinks the ASX small-cap share is a compelling buy.

The post An ASX small-cap share to buy for its bright future appeared first on The Motley Fool Australia.

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• Beacon Lighting Group share price jumps 14%: FY26 profit drops despite higher sales

Motley Fool contributor Tristan Harrison has positions in Wam Microcap. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.