1 ASX dividend stock to buy for growth and stay for a 5% yield

I think this is a sparkling opportunity to buy for the long-term.

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The ASX dividend stock Lovisa Holdings Ltd (ASX: LOV) could be an excellent long-term idea for dividends because of its willingness to pay out excess capital and deliver solid passive income.

Lovisa is a retailer of affordable jewellery for younger shoppers around the world.

It is becoming a true global retailer with its presence in so many countries.

Lovisa operates in Australia, New Zealand and Asia, including Singapore, Malaysia, Hong Kong, Taiwan, China, and Vietnam. It also has stores in the African countries of South Africa, Namibia and Botswana; the United Kingdom and Europe, as well as the UAE, the United States, Canada and Mexico.

The business also has franchise arrangements in the Middle East and African region, and in South America.

That global growth is helping fund larger dividend payments from the ASX dividend stock.

Strong store growth unlocking passive income

Due to the low cost of its products, Lovisa is able to open new stores fairly cheaply and quickly. In the FY24 first-half result, Lovisa revealed its global store network increased by 19% year over year to 854 locations.

The FY24 first-half result saw net profit after tax (NPAT) increase 12% to $53.5 million, and the dividend per share was hiked by 31% to 50 cents per share.

The Lovisa HY21 half-year dividend was 20 cents per share, compared to 13 cents per share in the HY18 result. Thus, the dividend has grown by 150% in three years and by 285% in six years.

I'm not expecting as much dividend growth in the next three years, but the payouts could continue to grow at a pleasing rate.

Dividend growth expected to continue

The broker UBS has forecast that the Lovisa annual dividend per share could be 75 cents in FY24 (up 8.7%) year over year, which would have a dividend yield of around 3%, including the franking credits.

UBS has predicted passive income growth for the ASX dividend stock in each of the subsequent financial years.

  • In FY25, the annual dividend could increase another 12% to 84 cents per share.
  • In FY26, it could rise 18% to 99 cents per share.
  • In FY27, it may increase another 19% to $1.18 per share.
  • In FY28, the annual payout could jump 14% to $1.35 per share.

If that FY28 payout happens, the Lovisa grossed-up dividend yield could be getting close to 5%.

It's possible Lovisa may keep the dividend payout ratio at close to 100% of its net profit, in which case the FY28 grossed-up dividend yield could actually be something like 5.4%, based on the UBS projection for profit.

I'm optimistic about Lovisa's growth prospects and the potential dividend payouts.

Motley Fool contributor Tristan Harrison has positions in Lovisa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa. The Motley Fool Australia has recommended Lovisa. 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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