The ASX dividend share Accent Group Ltd (ASX: AX1) could be one of the most rewarding stocks in terms of passive income over the next couple of financial years.
For readers that don't know, this is one of the largest shoe retailers in Australia. It sells shoes through some brands that it owns, and also as a distributor. Some of those brands include Dr Martens, Glue Store, Hoka, Kappa, Skechers, The Athlete's Foot and Vans.
Many types of retailers might see some difficulty during FY24 because of all of the impacts of inflation and higher interest rates. Households may decide to spend less, though it will be interesting to see how shoe retailing performs compared to other forms of retailing.
Whatever happens, analysts are currently expecting that conditions will improve in FY25 and this could enable the company to make stronger profit and pay a larger dividend.
Dividend projection
On Commsec, the current numbers suggest that Accent shares might pay an annual dividend per share of 11.2 cents in FY24 and then this could grow to 13 cents per share in FY25, which would represent growth of 16%.
If the ASX dividend share does pay that forecast payout in FY25, it would represent a grossed-up dividend yield of 11% at the current Accent share price.
A double-digit grossed-up dividend yield seems attractive, and it seems possible because the business could be trading on a relatively low price/earnings (P/E) ratio.
Accent shares valuation
Retailers normally trade on a good P/E ratio. In FY25, the company is expected to generate earnings per share (EPS) of 15.3 cents.
This means that the Accent share price is valued at just 11 times FY25's estimated earnings. The company could have a relatively high dividend payout ratio, which helps boost the dividend yield.
How profit could grow in the long term?
The business is doing a number of things to try to grow its earnings. It's rolling out a large number of new stores with its existing brands, which can expand the company's scale and boost margins.
Accent can also expand its business by adding new brands to the portfolio and hopefully win over more customers.
Why is profit growth so important for the ASX dividend share? A rise in profit can boost the Accent share price and it can also fund larger dividend payments.
I think this stock is one to watch.
