Universal Store Holdings Ltd (ASX: UNI) shares could be a leading choice for passive income on the ASX, even if many investors aren't aware of the business's appealing elements.
The company owns a portfolio of premium youth fashion brands and omni-channel retail and wholesale businesses. Its principal businesses are Universal Store (trading under the Universal Store and Perfect Stranger retail banners) and CTC (trading under the THRILLS and Worship brands).
It currently operates 118 physical stores across Australia. It says its strategy is to grow and develop its premium fashion apparel brands and retail formats targeting fashion-focused customers.
Let's look at the positives of this great business.
Image source: Getty Images
A great dividend yield
One of the first things to know about this wonderful ASX dividend share is that it has a very high dividend yield.
I expect the business will continue to be a pleasing dividend option in the short term and the long term because retailers generally trade on relatively low price/earnings (P/E) ratios. The lower the P/E ratio, the higher the dividend yield.
If we look at the dividends declared by the business over the last 12 months, it comes to 42.5 cents per share. That translates into a grossed-up dividend yield of 8.2%, including franking credits, at the time of writing.
That's a large dividend yield by itself, but I'm expecting the payouts to rise in the coming years.
Rising payouts
Universal Store has increased its annual passive dividend income per share each year since FY21, when it started paying dividends to shareholders. It has already racked up half a decade of dividend increases, which is impressive considering the volatile retail trading conditions during this decade.
Dividend growth is not guaranteed, of course, but the business has regularly increased the payout for investors, and I expect that record to continue.
Growing earnings
The company's net profit is regularly growing, which is the main factor driving rising dividends.
Universal Store's earnings are being driven by solid like-for-like sales growth for both the Universal Store and Perfect Stranger brands, expanding store networks and improving scale benefits.
In FY26, the midpoint of the company's guidance suggests sales growth of 11.5% and underlying operating profit (EBITA) growth of 15.4%. That's pleasing for the double-digit growth and the implied rising profit margin.
According to the projection on CMC Invest, the business is valued at 14x FY26's estimated earnings.
$400 per month of passive income
The business doesn't pay a dividend every month, but we can take the annual dividend and make it a monthly amount.
Receiving $400 per month translates into $4,800 per year. If we exclude franking credits, an investor would need to own 11,295 shares of the ASX stock based on the payout from the last 12 months.
I'd be willing to make that investment, but there are other ASX stock names that could be appealing too.
