The S&P/ASX 200 Index (ASX: XJO) share Lovisa Holdings Ltd (ASX: LOV) could grow to become a leading ASX dividend share in the coming years.
A low-cost jewellery retailer may not sound like the sort of business that can deliver piles of cash, but I think it's one that all investors should take note of.
Dividends have soared
The past isn't necessarily going to be repeated again, but I think Lovisa's dividend trajectory is compelling and suggests ongoing growth could be useful.
In FY23, Lovisa paid an annual dividend of 69 cents per share, compared to 33 cents per share in FY19, which is an increase of 109%.
I wouldn't expect the ASX 200 share's dividend to double again by FY27, but it could keep rising strongly if the net profit after tax (NPAT) keeps growing and the dividend payout ratio stays quite generous.
Payouts expected to keep growing
On Commsec, Lovisa is estimated to pay an annual dividend per share of 91 cents in FY26, which would be growth of 32% from FY23. Excluding the effect of franking credits, that would translate into a forward dividend yield of 4%, or 5.1% at the same franking rate as the last dividend.
The broker UBS has forecast the Lovisa dividend could rise to $1.32 per share, which would be a rise of 91% over five years between FY23 to FY28. That means in FY28, the dividend yield could be 5.9%, or 7.5% at the same franking rate.
Lovisa ended FY19 with 390 stores and in FY23 it finished with 801 stores, an increase of 105%. Perhaps it's unsurprising that Lovisa has grown its dividend at almost exactly the same pace as its store growth.
The more stores the ASX 200 share has, the more profit it can make and then the bigger dividends it can pay.
At the company's AGM, it said in the first 20 weeks of FY24 that total sales had increased 17% year over year and opened another 35 net new stores.
To me, one of the most exciting things about Lovisa is that it has only just entered a number of markets including Vietnam, mainland China, Hong Kong, Taiwan, Mexico, Canada, Spain, Italy and Ecuador.
Australia has a population of around 27 million, while many of the markets I just mentioned have much bigger populations. That doesn't necessarily mean they're all going to have the same store-to-population ratio as Australia (which has around 170 stores). I think there's plenty of scope for Lovisa to double its store count in the next five or six years, which could mean Lovisa is able to double its dividend.
Lovisa share price valuation
In the last five years, Lovisa shares have risen to 210%. At the current share price, Lovisa is valued at just 15x FY28's estimated earnings, according to UBS.
If the ASX 200 share's profit can keep growing, I think the Lovisa dividend and (hopefully the Lovisa share price) can keep rising.
