The ASX dividend share Shaver Shop Group Ltd (ASX: SSG) looks like a strong contender for passive income in my opinion.
Shaver Shop describes itself as a specialty in Australia and New Zealand, selling male and female personal grooming products and aspires to be the market leader in "all things related to hair removal".
The company has over 120 stores across the two countries and is now expanding into other personal care products including oral care, hair care, massage, air treatment and beauty categories.
How good is the passive dividend income?
The business has been one of the few ASX retail shares to grow its dividend in each of the last five years, including through the COVID-19 period.
But, not only that, but it's also predicted to keep growing its dividend in the next few years, while others such as Nick Scali Limited (ASX: NCK) and JB Hi-Fi Limited (ASX: JBH) – which also have impressive dividend streaks – are expected to cut their dividend in FY24.
According to Commsec, Shaver Shop could pay an annual dividend per share of 10.2, which would be a grossed-up dividend yield of 13.4%.
In FY24, the ASX dividend share is projected to grow its dividend per share to 10.7 cents. This would translate into a grossed-up dividend yield of 14.1%.
Another dividend increase could happen in FY25, with a possible rise to 11.5 cents per share. That would be a grossed-up dividend yield of 15%. That's a lot of passive income.
I'd suggest there are probably very few companies expected to pay a dividend yield of more than 10% in the current financial year and to keep growing the dividend yield to 15% by FY25.
Can the ASX dividend share grow earnings?
I think one of the most important factors for dividend growth is earnings growth, as that's what funds the dividend payments.
Time will tell what earnings the business makes in FY23 and the next few years. In the current financial year, being the 2023 financial year, it's possible that the ASX dividend share could generate 12.3 cents of earnings per share (EPS) according to Commsec. That puts the Shaver Shop share price at 9 times FY23's estimated earnings.
It could then grow its EPS to 13.6 cents in FY24 and 14.2 cents in FY25. This means that the Shaver Shop share price could be valued at under 8 times FY25's estimated earnings.
I think the business' earnings can grow thanks to a number of factors. It's growing its store network. The market for personal care is increasing, partly thanks to a growing Australian population. The profit margins are growing as it scales. Plus, it has no debt, so the balance sheet is in good shape.
In the FY23 half-year result, it saw a gross profit margin improvement of 50 basis points to 44.3%, the earnings before interest, tax, depreciation and amortisation (EBITDA) margin went up 30 basis points to 21.3% and the earnings before interest and tax (EBIT) margin grew 30 basis points to 15.7%.
I think the ASX dividend share could be one of the leading options for high-yield passive income in the medium term.
