S&P/ASX 200 Index (ASX: XJO) stock Inghams Group Ltd (ASX: ING) could be the source of appealing passive income in the form of dividends. It could play a part in an investor's nest egg.
Inghams is the largest integrated poultry producer in Australia and New Zealand. While chickens are the core part of the business, it's also involved with the production of turkey and stock feed.
The ASX agriculture share has been through a lot of volatility over the last few years as it suffers from inflation impacts.
Inghams earnings recap
Inghams' recent FY23 half-year result showed some of the pain that the business has gone through over the prior 12 months. While core poultry volume was only down 0.6% year over year, the underlying earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 12.2% to $210.2 million and the underlying net profit after tax (NPAT) fell 13.1% to $26.6 million.
But, the comparison to the FY22 second half numbers shows how much the business has already started showing an improvement. Half-over-half, underlying EBITDA rose 32.7% and underlying NPAT was up 885.2%.
Consumer demand returns
Inghams said in the result that poultry demand was seeing "healthy growth" as consumer activity returned to pre-COVID patterns. An industry-wide reduction of chicken volume for sale has underpinned a "favourable pricing environment". That sounds positive for its ability to pay passive income in the coming periods.
While it was still seeing cost inflation, the company said it was "focused on ensuring customer pricing levels appropriately reflect these ongoing feed and inflationary cost pressures and will pass on further price increases as required." The company added:
The poultry sector remains a growing sector, holding a significant and growing affordability advantage over red meat and seafood alternatives which is particularly attractive in the current inflationary environment.
Importantly, ongoing discussions with key customers highlights their strategic focus on the poultry segment, reaffirming our optimism for the category over the medium to longer term.
It's with that in mind that there are projections for good dividends in the next few years from Inghams.
$300 goal of monthly passive income from the ASX 200 stock
In FY24, the business could generate 21.6 cents of earnings per share (EPS) and pay a dividend per share of 14.8 cents (according to Commsec), which would equate to a forward grossed-up dividend yield of 7.5%.
If we think about the monthly $300 target, Inghams doesn't actually pay monthly. But, we can think of the target of a $3,600 goal which is then divided into 12 equal amounts.
Investors would need 24,325 Inghams shares to get $3,600 of annual passive income in FY24. This many shares would currently come at a cost of around $68,000.
But, that cost could be reduced if we think further ahead to the FY25 payout. Commsec numbers suggest that the ASX 200 stock could pay a total dividend per share of 17.4 cents per share. To achieve $3,600 of annual dividend income with that goal in mind, we're talking about 20,690 Inghams shares for a cost of around $58,000.
Diversification is a good idea in a passive income portfolio, I wouldn't put all my eggs in one basket with Inghams, But, I think it can deliver good dividends and growth over the next few years.
