As investors approach retirement, generating passive income using dividend stocks becomes increasingly attractive.
However, it's important that retirees also understand the importance of generating capital gains.
Inflation remains a real and persistent risk in retirement.
A portfolio that generates strong income today but offers limited capital growth can gradually lose purchasing power over time.
By balancing income with growth, retirees can build a larger pool of assets. They can also maintain greater flexibility during market downturns and improve the likelihood that their savings will last throughout retirement.
Ultimately, the objective is not simply to generate income, but to preserve purchasing power and support a sustainable retirement lifestyle.
One stock that currently offers the best of both worlds is IVE Group Ltd (ASX: IGL).
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Company overview
IVE Group (IVE) is the largest integrated marketing communications business in Australia. It has leading market positions across every sector in which the company operates.
Over the past 20 years, it has expanded organically into logistics, creative services, integrated marketing, and web offset printing, and through acquisition, into data-driven communications, retail display, premiums and merchandising, marketing automation, distribution, and digital catalogues.
The result is a diversified, resilient business. It has supported a consistently high dividend yield and a strong balance sheet to pursue further growth opportunities.
At the time of writing, it is offering a dividend yield of roughly 7% over the next couple of years.
This provides retirees with a steady stream of passive income.
Why it could be undervalued
According to a new report from Bell Potter, the lack of any trading update from IVE Group, with only a week to go in the financial year, perhaps suggests the company is on track to achieve its FY26 guidance of underlying NPAT "around $50m".
The stock has, however, continued to trade relatively weakly over the last few months. It is well below the levels at which it traded in the first several months of FY26.
The market, therefore, has perhaps been anticipating a negative update given the company's exposure to the retail and media sectors, which admittedly has already driven two soft downgrades in the FY26 guidance to the current level.
Furthermore, the share buyback has been inactive since mid-April, which, again, suggests an update has been forthcoming, but notably, the buyback in FY25 was similarly ceased around mid-April, so it is perhaps more just company policy to be inactive from that time.
The lack of any update at least suggests the guidance is intact which, if achieved, means the stock looks value on an underlying FY26 PE ratio of just 8x.
7% yield and 20% upside
The result of this stock being undervalued is a potential for significant capital gain, giving this dividend a rare blend of income and growth potential.
Bell Potter currently has a buy recommendation on this ASX dividend stock, along with a 12-month price target of $3.25.
This indicates an upside potential of 21% from current levels.
We see the stock as value trading on underlying PE ratios of 8x and 7x in FY26 and FY27 with growth expected to pick up again in FY27 and continue into FY28. We also note this is the final year the dividend has been capped or set at 18c – which still generates a yield of 7% – and see potential or likely upside to the dividend in FY27 and beyond.
