Owning Westpac Banking Corp (ASX: WBC) shares may be a popular choice for many Aussies looking for passive income. But I believe another dividend giant called Universal Store Holdings Ltd (ASX: UNI) could be a better option.
Universal Store owns a portfolio of premium youth fashion brands and retail and wholesale businesses. That includes Universal Store, CTC (including the THRILLS and Worship brands), and Perfect Stranger. Its strategy is to grow its premium youth fashion apparel brands and retail formats to "deliver a carefully curated selection of on-trend apparel products to target 16-35 year-old fashion-focused customers."
Although it's nowhere near as large as Westpac, Universal Store offers more return potential for several different reasons.
Solid dividend
A dividend isn't the only important thing about an ASX dividend share, but it's probably the first thing many income-seeking investors may look at.
Universal Store has grown its annual dividend per share each year since 2021, when it first started paying a dividend. While Westpac's dividend has grown since 2021, its FY21 payment was significantly lower than FY19, and the FY24 payment was also lower than FY19. I think Universal Store has shown a stronger dividend record.
Let's look at the latest dividend yields from the two businesses. Using the latest annual payments, Westpac has a grossed-up dividend yield of 6.6%, including franking credits, and Universal Store has a grossed-up dividend yield of 6.3%.
I believe that Universal Store's dividend yield can quickly overtake Westpac's, thanks to the power of earnings growth.
Earnings growth
One of the main reasons I'm calling Universal Store a dividend giant is how impressively the business is growing in size. Larger earnings can translate into bigger dividends.
In FY24, Universal Store's underlying operating profit (EBIT) increased by 16.6% to $47.1 million, and the statutory net profit after tax (NPAT) jumped by 45.3% to $34.3 million.
FY25 started strongly for the retail company, with direct to customer sales up 19.3% year over year in the first 17 weeks of FY25 to 27 October 2024. The earnings forecasts on Commsec suggest the business could grow earnings per share (EPS) by double-digits, in percentage terms, in FY25 and FY26.
However, in FY24, Westpac's net profit fell 3% to $7 billion. According to the projections, Westpac's profit may rise in FY25 and FY26, but in percentage terms, it will be at a single-digit pace.
Valuation
I think the most important thing about investing is ensuring that we're buying at a decent price. This gives a better margin of safety.
Despite the Universal Store share price doubling over the last year, I'd still say it's a better value dividend giant than Westpac because of its stronger earnings growth potential.
Using the projections on Commsec, the Universal Store share price is valued at 16x FY25's estimated earnings and the Westpac share price is valued at 15.4x FY25's estimated earnings.
