Helia Group Ltd (ASX: HLI) could be one ASX dividend stock to watch right now.
It is currently fetching $3.94 per share.
At this price, shares in the lenders mortgage insurance provider trade on a price-to-earnings (P/E) ratio of just 5.3 and a trailing dividend yield of 7.7%.
Despite a mixed first half of 2024, the stock's valuation and income potential could make it an intriguing prospect for dividend-focused investors. Let's see what the experts say.
Cheap ASX dividend share, or just low valued?
Low valuations and high dividend yields aren't always a combination for a good bargain. Sometimes, assets are just of low value. What's the case for this ASX dividend stock?
In its H1 2024 results, the ASX dividend stock booked a 34% decrease in net profit from the prior period. Management put this down to the challenging interest rate environment.
Despite these declines, the company increased its dividend by 7% year over year, declaring a fully franked interim payment of 15 cents per share.
The ASX dividend stock has also managed to grow its net tangible assets per share by 4%, finishing the year with $2.8 billion in total cash and financial assets.
But the question is if Helia's current P/E ratio of 5.3 suggests the stock is undervalued.
In contrast, the broader market currently trades at a more than 20 times multiple, suggesting investors are paying $20 for every dollar of earnings.
Meanwhile, investors pay only $5 for every dollar of Helia's earnings.
Furthermore, management said it looks to pay dividends "similar" to recent years, meaning we could expect a similar dividend yield going forward if this is the case.
What do brokers say?
In June, investors sold the ASX dividend stock due to uncertainty about the future of its lender's mortgage insurance (LMI) contract with the Commonwealth Bank of Australia (ASX: CBA).
The selloff was short-lived, however, and shares have more or less tracked sideways since.
Analysts also appear cautiously optimistic about the company. After the LMI saga, Macquarie upgraded its price target to $3.90 per share.
Goldman Sachs is more bullish, valuing the ASX dividend stock at $4.53 per share despite rating it a hold.
It notes the company's "stronger than expected macro recovery" and "structurally lower loan losses" which have helped its claims ratio.
Meanwhile, Helia is rated a hold by consensus, according to CommSec data.
Final takeaways
A low valuation alone doesn't make a stock a buy. With that, Helia Group has a lot to do to prove itself to the market.
In the meantime, management expects the business to pay consistent dividends moving forward.
Helia stock is up nearly 9% in the past year.
