I love investing in undervalued ASX dividend stocks because it means getting a good dividend yield and hopefully generating some pleasing capital gains too.
The business I want to highlight in this article is HMC Capital Ltd (ASX: HMC). As the chart shows, it has dropped 77% in less than a year. Ouch.
This ASX dividend stock is a diversified asset manager that gives investors exposure to real estate, energy, digital infrastructure and private equity through listed and unlisted funds.
While it's clear the market has reduced it expectations for the business, I think its dividend yield and growth outlook now look compelling at the current valuation for a few different reasons.
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Appealing dividend yield
In FY25, the business decided to pay a (partially franked) dividend of 12 cents per share.
For FY26, HMC Capital has provided guidance that its annual payout will be 12 cents per share. That's consistent with its strategy to "maintain the dividend at this level and re-invest retained earnings into value accretive growth opportunities."
Considering the ASX dividend stock has fallen so much in the past year, the projected dividend payout now looks appealing.
The potential dividend yield for FY26 is 4% excluding any potential franking credits. If the payout were to be fully franked, it'd be a grossed-up dividend yield of around 6%.
Underlying growth expected
While the FY25 result was boosted by outsized performance from the private equity division's HMCCP fund, the business is still expected to deliver "at least" pre-tax earnings of 40 cents per share, representing a compound annual growth rate (CAGR) of 29% since FY20.
That means the ASX dividend stock is currently trading at less than 8x FY26's forecast pre-tax earnings. That looks cheap with the expected growth below.
FY26 pre-tax earnings are "expected to be more influenced by organic growth in recurring funds management earnings from established divisions".
The real estate segment is expected to achieve 15% fund management operating profit (EBITDA) growth year-over-year.
The private credit division is projected 20% funds management EBITDA year-over-year growth.
The private equity division is expecting normalised fund performance with a target of 15% per year.
HMC Capital said that the digital and energy transition funds management divisions will target similar growth levels once operationalised.
I'm expecting longer-term earnings growth in FY27 and beyond, so it seems reasonably priced to me.
Strong balance sheet
While earnings and dividends are a good support for the business, it also has a significant balance sheet backing to justify its current (and a higher) share price.
HMC Capital reported that its balance sheet had $3.24 per share of net tangible assets (NTA) as at June 2025. At the current share price of $2.90, that suggests the ASX dividend share is trading at a cheap price compared to its balance sheet.
Overall, while it could be a bumpy ride, I think this ASX dividend stock is an appealing idea.
