The ASX dividend stock Collins Foods Ltd (ASX: CKF) has dropped 41% from January 2024, as the chart below shows.
Collins Foods describes itself as a KFC franchisee business in Australia, the Netherlands and Germany. While it's not the owner of the KFC brand – that's Yum! Brands – it does have large and growing store networks in Australia and Europe.
The ASX share typically trades on a relatively low price/earnings (P/E) ratio. The share price has dipped further in recent times, boosting the dividend yield. While uncertainty could continue in the short-term, I'm optimistic about the long-term prospects of the business.
For investors nervous about the upcoming FY25 result, to be released on 24 June 2025, it may be a good idea to wait until after the result before deciding to buy.
However, the ASX dividend stock is predicted to pay a pleasing dividend yield over the next few years, so weakness this year could be a compelling buying opportunity.
Appealing dividends projected
I'm going to use the projections from broker UBS to help figure out what the dividend yield may be.
UBS is currently expecting Collins Foods to pay an annual dividend per share of 20 cents in FY25, which translates into a grossed-up dividend yield of 4%, including franking credits.
But, the dividend could bounce back in the 2026 financial year with an annual payment of 26 cents per share, and rise further in the 2027 financial year to 33 cents per share. Therefore, the FY26 grossed-up dividend yield could be 5.1% and the FY27 grossed-up dividend yield could be 6.5%, including franking credits.
The broker is expecting even larger dividends in FY28 and FY29, but we shouldn't get too far ahead of ourselves.
Can earnings grow in the future?
While net profit after tax (NPAT) is forecast to decline to $42 million in FY25, there is potential for good performance in both Australia and Germany. However, consumer confidence in the Netherlands could be the most challenging segment.
But, UBS believes it will be easier for the ASX dividend stock to deliver sales growth in FY26 because of weaker sales in the comparable period in FY25. Australian costs have also become "materially more manageable in FY26 (particularly chicken)", according to the broker. The company should also benefit from a reduction in interest rates, according to UBS.
The business also recently announced a number of strategic initiatives to help its profitability. It's aiming to continue expanding its network and grow its same-store sales (SSS) in Australia and accelerate its restaurant openings in Germany. It's targeting between 40 to 70 new KFC restaurants in Germany over the next five years.
The ASX dividend stock also recently exited the Taco Bell business, which will remove the operating losses it contributed to the overall business.
But, the company also said it's open to additional opportunities in Europe.
At the current Collins Foods share price, it's valued at 16x FY26's estimated earnings, according to UBS' projections. Further profit growth is expected in the subsequent years.
