With its 8% yield, I think this undervalued ASX 200 stock is an opportunity not to miss

The value and passive income of this stock looks very eggciting to me.

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The S&P/ASX 200 Index (ASX: XJO) stock Inghams Group Ltd (ASX: ING) looks like a good buy because of its dividend income and the value it offers.

Inghams claims to be the largest integrated poultry producer in Australia and New Zealand. Its products are sold through various businesses, including fast food, food service distributors and wholesalers, and supermarkets.

The company also has strong market positions across the Australian turkey, Australian stockfeed and New Zealand dairy feed industries.

Why the ASX 200 stock looks cheap

Inghams is recovering from the impacts of inflation, which significantly affected costs during that period a couple of years ago.

The company is now getting back to good profitability – the FY24 first-half result saw group core poultry volume grow 2.2% to 240.8kt, revenue rose 8.7% to $1.64 billion, the underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rose 19.9% to $252.1 million, and the underlying net profit after tax (NPAT) jumped 134.2% to $62.3 million.

Inghams is expecting some benefit from lower key feed costs in FY25, which could help profit rise again.

The ASX 200 stock is also investing in automation which it expects, over time, will "provide cost savings, higher yield and throughput outcomes, and improved product quality." It's also expected the automation investments will support increased production of value-add products and new customer opportunities.

On top of that, Inghams' new distribution in Hazelmere, WA, has started operations. It also opened new distribution centres in August 2022 and April 2023 in Victoria and South Australia, respectively. These new facilities can help the company's efficiencies.

The forecast on Commsec suggests Inghams could make earnings per share (EPS) of 33.4 cents in FY25 and 36.8 cents in FY26, putting it on a forward earnings multiple of under 12x for FY25 and under 11x for FY26.  

While we don't know precisely what the earnings are going to be, things look positive for Inghams shares and the trajectory of profit.

Big dividend yield

With the ASX 200 stock's low price/earnings (P/E) ratio, it's projected to have a solid dividend yield, just like before COVID-19.

Commsec's forecast suggests Inghams might go with a dividend payout ratio of around 66%. This could lead to a grossed-up dividend yield of 8.3% in FY25 and 8.9% in FY26.

The prospect of rising profit, a growing dividend, and a big yield look like a compelling combination that could power tasty returns over the next two or three years.  

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 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.

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