ASX dividend stock Eagers Automotive Ltd (ASX: APE) has had a difficult year on the chart in 2024. Shares in the company have fallen 30% in that time.
However, the automotive retail group's low valuation and high dividend yield make it potentially interesting for income-focused investors.
Trading at $10.12 per share yesterday at market close, this blue-chip ASX stock has a price-to-earnings (P/E) ratio of just 10 times and a dividend yield of 7.3%.
But with such a low P/E and a strong yield, does this stock represent a smart buy for long-term investors? Let's see what the experts think.
ASX dividend stock too cheap to ignore?
On face value, a P/E ratio of 10 suggests Eagers Automotive may be undervalued compared to other stocks in the ASX 200.
For context, a P/E ratio this low means investors are paying just $10 for every $1 of the company's earnings. This compares favourably to the broader market, which currently trades at 20.8 times.
Eagers' relatively low P/E ratio may or may not be an indicator that the market is underpricing the company.
Brokers believe the ASX dividend stock has room to run. Bell Potter and Morgans are both bullish, with price targets of $13 and $14 per share, respectively.
Meanwhile, consensus rates the stock a buy as well, according to CommSec.
If the market recognises this potential, Eagers' share price could climb by up to 39% from its current price of $10.12.
Dividend yields to consider
In addition to its low P/E ratio, Eagers Automotive currently offers a fully franked dividend yield of 7.3%.
In a perfect world, this means investors can not only benefit from the company's earnings but also enjoy a steady income stream through dividends.
According to Bell Potter, Eagers is forecast to deliver fully franked dividends of 66.5 cents per share this year and 73 cents per share in 2025.
At its current share price, this represents yields of about 6.5% and 7%, respectively. When compared to other ASX dividend stocks or high-interest savings accounts, this is a higher rate of yield.
Is there a catch?
While the combination of a low P/E ratio and a high dividend yield may seem like a no-brainer, there are risks to consider.
Eagers operates in the highly cyclical automotive industry, where economic downturns can impact consumer spending on vehicles.
Furthermore, lowly valued businesses may just be that – of low value. While brokers are generally bullish on the ASX dividend stock, it has to meet expectations.
There's no saying this is the case here, but it is definitely food for thought. Ultimately, Eagers' business performance will tell if is rewarded with higher valuation multiples over time.
ASX dividend stock takeaway
Eagers Automotive's current P/E ratio of 10 and its 7.3% dividend yield could make it a blue-chip ASX dividend stock worth looking at.
The share price is down 27% in the past year.
