Wouldn't it be great to own ASX shares that can deliver a combination of both capital growth and dividends?
Companies with long-term growth track records that are going through a short-term headwind could be an opportunity for investors.
The broker UBS has called two ASX shares 'buys' that have recently seen share price declines, so now could be a good time to pounce. Here are the two underrated stocks that are the ones to watch.
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Collins Foods Ltd (ASX: CKF)
Collins Foods is a large-scale franchisee operator of KFCs across Australia and Europe, as well as Taco Bells in Australia.
The Collins Foods share price has dropped 30% since January 2024, so it's a lot cheaper to buy into. This is despite its fast food network being the largest it has ever been. The company has faced challenges, including cost inflation and limited revenue growth amid a challenging economic environment.
UBS has a buy rating on the business, with a price target of $10.40. That implies it could rise more than 20% within the next year. By FY26, it's predicted to pay an annual dividend per share of 36 cents, which would be a grossed-up dividend yield of 6%, including franking credits.
Despite the recent trading difficulties, there are a few reasons why UBS likes the ASX share:
We continue to favour CKF given: 1) exposure to stronger WA/QLD states; 2) trade-down beneficiary of full-service restaurants (although ING's [Inghams Group Ltd (ASX: ING)] result suggests not immune to pressures from more eating at home); 3) share gains through the value offering; 4) further store expansion. Valuation looks undemanding vs peers…
Based on UBS' estimates, the current Collins Foods share price is valued at under 15x FY26's estimated earnings.
Accent Group Ltd (ASX: AX1)
Accent is an ASX retail share that owns some businesses itself, such as Nude Lucy, Stylerunner, Lulu and Rose, Article One and others. It also has several distribution agreements with global shoe brands including Ugg, Herschel, Hoka, Vans, Skechers, Merrell, Dr Martens and more.
The Accent share price has fallen 16% since April 2021, so it looks cheaper, too. The company has seen volatility as investors worry about the impact of the cost of living on the business and retail spending.
UBS currently has a buy rating on the business, with a price target of $2.50. While that doesn't imply much capital growth over the next 12 months, the dividend could be significant.
The UBS projection implies the business could pay a grossed-up dividend yield of 8.7% in FY25 and 9.8% in FY26.
The broker expects the ASX share to add 50 new stores in FY25, and the expert is "confident in the long-term sales growth potential." UBS also thinks Accent can grow its operating profit (EBIT) margin as it lowers its cost-to-sales ratio in the coming years.
