I love finding ASX dividend stocks that are undervalued, are expected to grow profit and can deliver significant passive income. I'm very likely to buy Accent Group Ltd (ASX: AX1) shares within the next month – I'm excited by the value on offer. It's down by around 50% from its 52-week high.
Accent is a retailer in Australia and New Zealand that sells both footwear and apparel through its own brands and it acts as a local retailer for some global footwear brands.
Some of the global brands include Skechers, Timberland, Merrell, Saucony, Hoka, Norda, Ugg, Lacoste, Vans, Herschel, Dr Martens and Dickies. Some of its own businesses include Platypus, The Athlete's Foot, Glue Store, Hype, Nude Lucy, Stylerunner and a few others.
I'm expecting a general recovery for discretionary retailers following a difficult economic period for households and consumers thanks to RBA rate cuts, which could enable a sizeable profit recovery for the ASX dividend stock in the medium-term.
But, there are a couple of specific reasons why I think Accent shares are so compelling for income investors.
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Large and growing dividend yield
I think the business could deliver significant passive income for investors in the coming years.
In FY25, Accent paid an annual dividend per share of 7 cents. Including franking credits, the ASX dividend stock has a trailing grossed-up dividend yield of 7.5%.
But, analysts believe that the payout could increase in the coming years. That's exactly what I'd want to see if passive income was an important factor for me.
The forecast on Commsec suggests the business could increase its payout to 7.8 cents per share. At the current Accent share price, that translates into a grossed-up dividend yield of 8.5%, including franking credits.
It could get even better in FY27 if the estimate on Commsec becomes reality. The projection suggests an annual dividend per share of 10.3 cents. That translates into potential grossed-up dividend yield of 11%, including franking credits.
Getting a double-digit dividend yield in a couple of years sounds very appealing to me, though it's not guaranteed. I'm optimistic it can happen because of one growth initiative.
Sports Direct
I think Accent's partnership with Frasers to roll out Sports Direct stores across Australia and New Zealand could be a significant game-changer.
The company said its Sports Direct Australia's digital site will be trading by November 2025 and the first store will be located in the Fountain Gate shopping centre, which is also expected to open in November 2025.
By the end of FY26, the ASX dividend stock expects to have at least three physical stores operational. Within the first six years, it expects to have 50 stores and there is an opportunity to have up to 100 over time.
The Sports Direct offering will/can sell various global brands that Accent has distribution agreements with (such as Hoka and Skechers). The stores can sell various Frasers-owned brands including Everlast, Karrimor, Lonsdale, Slazenger and plenty of others. Sports Direct Australia could also sell global brands that Sports Direct sells in other countries including Nike, Adidas, Puma, New Balance, Under Armour and more. I think this is a significant opportunity for Accent to grow in the Australian and New Zealand sports market which is estimated to be worth at least $5 billion.
