The ASX dividend share Inghams Group Ltd (ASX: ING) already offers investors a large dividend yield but it could become gigantic over the rest of the decade.
Inghams is a major poultry business which supplies customers like supermarkets, fast food operators, food service distributors and wholesalers. The company also has strong market positions across Australian turkey, Australian stockfeed and the New Zealand dairy feed industries.
At the current Inghams share price, it offers a fully franked dividend yield of 5.25% and a grossed-up dividend yield of 7.5%, including franking credits.
But, in the next few years, the business could increase its payout by 40% for investors. Let's take a look at what underpins that expectation by the broker UBS.
Profit expected to increase significantly
UBS is currently suggesting the business could generate 27 cents of earnings per share (EPS) in FY25 and then increase by 44% between FY25 and FY29.
The broker noted the recent trading update from the poultry market which revealed the company had successfully replaced 92% of the lost Woolworths Group Ltd (ASX: WOW) volumes.
Plus, the average selling price in the year to date had seen an increase of 1.2%, which was a slight acceleration from 1% growth the ASX dividend share reported in the first half of FY25. UBS said this increase is a "very strong achievement" by the company.
UBS said this represented "pleasing operational price discipline across the group as well as an industry that appears to be highly rational at present."
The broker highlighted two things that makes Inghams shares attractive:
We remain attracted to Inghams' leading position in the ANZ Poultry market. We view Poultry as a solid protein category given (1) rational oligopoly market structure, and (2) consumers shifting towards chicken given its lower price point vs. pink/red meat.
Large dividend yield predicted for the ASX dividend share
UBS is forecasting that Inghams could pay an annual dividend per share of 28 cents per share in FY29, representing a 40% compared to the predicted payout of 20 cents per share in FY25.
At the current Inghams share price, that projected future payout represents a future grossed-up dividend yield of 11%, including franking credits.
However, it must be said that UBS only has a price target of $3.65, so the broker is suggesting the ASX dividend share's valuation may not move much over the next year. However, it could continue to be a pleasing option for passive income.
