The ASX income stock Accent Group Ltd (ASX: AX1) recently reported its result, which included a number of positives. However, there was one major issue for dividend investors – the passive income payment was cut.
The shoe retailing business has paid investors significant passive income over the past decade, but I think this recent reduction could make the business more appealing. The overall offering of the company as an investment looks good to me too.
Accent acts as a local distributor for a number of global retailers, including UGG, Skechers, VANS, Herschel, Hoka, and Merrell. It also has a number of other businesses, including The Athlete's Foot, Nudy Lucy, Stylerunner, Platypus, Hype, and a few others.
I often say that investing in ASX dividend shares isn't just about the dividends. Below are the reasons why I like this ASX income stock.
Solid financial results
Accent reported that in the first six months of FY25, its group sales (including franchisees) grew by 4.2% to $844.6 million. I think top-line growth is important, at least in line with inflation, because it indicates the company continues to scale and shows it's maintaining (or growing) its market share.
Even more important than that, Accent grew profit at a faster rate. Profit generation is important for the valuation and paying the dividend. Operating leverage is also useful because it indicates the business can become even more profitable as it becomes larger.
Operating profit (EBIT) grew 11.5% to $80.6 million, while net profit after tax (NPAT) rose 11.7% to $47.2 million. The growth rate of both profit measures was more than double that of the company's sales growth.
Ongoing business growth
One of the biggest drivers for the company's performance is working with more brands and opening more stores.
At the end of the HY25 result, the business had 903 stores, up from 895 stores at the end of FY24. That growth was despite the closure of 34 stores during the period, including 16 stores related to the ending of The Trybe, while the rest were closed because of unfavourable leasing terms. This shows a good commitment to being efficient with capital and that it's focused on profitable growth, not just having the biggest store count.
Excitingly, the ASX income stock is planning to work with two new brands in FY26 – Lacoste and Dickies.
Accent also said that it remains in active discussion with Frasers Group, with progress made on the documentation of a long-term strategic agreement. It expects to conclude negotiations during the second half of FY25. It'll be interesting to see what this entails.
Frasers Group is one of the world's largest owners of retailers of sports, premium, and luxury brands, including Sports Direct, House of Fraser, Flannels, Gieves and Hawkes, Everlast, and Slazenger. It bought a 14.65% stake in Accent last year.
Healthy dividend from the ASX income stock
Accent decided to reduce its interim dividend by 35% to 5.5 cents per share. At the current Accent share price, that payment translates into a grossed-up dividend yield of 3.8%, including franking credits.
We don't know what the final dividend of FY25 will be, but I think Accent will continue to offer a good dividend yield despite the reduction.
The company will be retaining more of its profit to reinvest for more growth in the future. Accent's dividend payout ratio for the half-year result is 66%, so it's keeping around a third of its profit for future use. I think this will benefit the ASX income stock in the long term.
