The ASX income stock Collins Foods Ltd (ASX: CKF) has dropped heavily in the last 15 months. As the chart below shows, it has dropped 30% from January 2025.
The business is the largest KFC franchisee in Australia with over 280 outlets, which are largely located in Queensland and Western Australia. It also has a growing network of KFCs across Germany and the Netherlands. It also has a small but growing network of Taco Bells in Australia.
After the recent decline, I think this business could be a good option for income investors. Let me explain why below.
Growing store network
One of the main ways that the business can grow its profit is by expanding its store network through organic openings and acquisitions.
In the FY25 half-year result, Collins Foods revealed that its Australian network was boosted by six new restaurant builds, taking the national footprint to 285. The ASX income stock also remodelled restaurants during the half to improve customer experience, operational capacity and efficiency.
Collins Foods' European footprint in the first half was 74 restaurants at the end of the FY25 first-half, with a "stronger development in place".
Germany has a much larger population than Australia, which gives the company a significant growth runway in Europe because it could add dozens or even hundreds of stores over time.
If it can just ensure slight sales growth at its existing restaurants each year, and add new locations to the network, then it could have a promising future for earnings growth.
Solid dividend yield
To be a good ASX income stock, I believe that a business needs to offer a good dividend yield.
Collins Foods does have a good record of paying passive income to shareholders over the past decade.
According to the forecast from UBS, Collins Foods is expected to pay an annual dividend per share of 29 cents in FY26. That would translate into a grossed-up dividend yield of 4.8%, including franking credits.
It's not a huge starting yield, but I think it can grow in future years.
Turnaround expected for the ASX income stock
The business has suffered from a mixture of higher costs due to inflation and lower demand because of the weak economy.
However, analysts don't think this weakness is going to last forever.
UBS predicts that Collins Foods could make net profit of $44 million in FY25, which could grow to $64 million in FY26 and reach $104 million by FY29.
The future looks brought for Collins Foods as an ASX income stock, in my view.
