Smartgroup Corporation Ltd (ASX: SIQ) shares could be a great option for passive income.
That's the view of analysts at Bell Potter, which believe that the ASX dividend stock could generate big returns for income investors.
What is Smartgroup?
Smartgroup is a leading Australian provider of employee benefits, salary packaging, and fleet management and software solutions. At the last count, it had over 400,000 salary packages and 64,000 novated leases under management.
It operates a vertically integrated model by offering standalone and complementary products in administration, vehicle sourcing and lifecycle management, finance procurement, and the sale of ancillary product consumables. Its clients include workers from the healthcare, government, education, not-for-profit, and corporate sectors.
Bell Potter is very positive on the company and has a buy rating and $10.00 price target on its shares. Based on where the ASX dividend stock is currently trading, this implies potential upside of 27% for investors over the next 12 months.
This means that if you were to invest $10,000 in its shares, it would turn into $12,700 if Bell Potter is on the money with its recommendation.
It likes the company due to its attractive valuation, defensive earnings, and positive outlook. It said:
Smartgroup is an industry-leading provider of employee benefits, end-to-end fleet management and software solutions with over 400,000 salary packages and 64,000 novated leases under management. SIQ looks well priced given a forward P/E of ~14.5x, a defensive client base, earnings tailwinds from the Electric Car Discount Bill (exempts low or zero emission vehicles from Fringe Benefits Tax), an ROE of ~30% and a strong balance sheet.
Our favourable investment view is predicated on: (1) defensive customer segments with strong forecast occupational growth within the disability and aged care services; (2) the Electric Car Discount Bill (2022) which exempts new energy vehicles from Fringe Benefits Tax; and (3) a greater availability and selection of new energy vehicles, particularly in the mid-to-large Sports Utility segment.
What about passive income?
Bell Potter is forecasting the company to pay a fully franked 59.7 cents per share dividend in FY 2025. This equates to a very generous dividend yield of approximately 7.6%.
This means that a $10,000 investment would pull in approximately $760 of passive income in FY 2025.
But wait, there's more! Bell Potter expects a dividend increase to 62.7 cents per share in FY 2026. This is the equivalent of an 8% dividend yield and would generate a further ~$800 of income.
Combined with the strong potential capital gains, it's no wonder this ASX dividend stock is highly rated by the broker.
