There are a lot of ASX dividend shares for investors to choose from on the Australian share market.
To narrow things down, let's take a look at one that could be among the best to buy as October approaches fast.
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Which ASX dividend share?
The dividend share that could be a best buy is HomeCo Daily Needs REIT (ASX: HDN).
It is a REIT with a focus on large format retail, neighbourhood centres, and health and services.
The company counts Coles Group Ltd (ASX: COL), Wesfarmers Ltd (ASX: WES), and Woolworths Group Ltd (ASX: WOW) as tenants.
Upgraded
According to a note out of Bell Potter this morning, the broker has upgraded this ASX dividend share on the belief that it is significantly undervalued. It said:
As the dust settles from reporting season we revisit HDN, upgrading to a Buy recommendation on relative valuation, supported by earnings trajectory and nondiscretionary retail fundamentals.
Valuation is oversold – HDN trades -2 std deviations below its 5-year average discount to NTA (-31.4% vs -13%) and at 12.0x P/E, a discount to the passive REIT peer average of 14.1x. The stock has fallen -13.3% since results and underperformed peers (HDN -19.1% vs XPJ -14.9%) over 3 months, a reaction we view as disproportionate to the underlying -2.2% FY27 earnings decline. Indeed, historically +2 or -2 standard deviations has been a strong indicator for externally managed REITs mean reversion and outperformance.
Bell Potter thinks now could be a good time to buy given its forecast for earnings to bottom in FY 2027. It adds:
We expect earnings to trough in FY27, with growth returning in FY28 (+2.5%) as the incremental mark-to-mkt of debt costs lessens, asset are divested accretively, and developments complete at >7% target ROIC.
It also believes longer term retail undersupply is supportive. Bell Potter said:
Retail supply completions have run well below trend (90k sqm p.a. average FY22-25 vs a 158k sqm 10-year average), driving vacancy down and rental growth up across the neighbourhood/ LFR formats HDN is exposed to, supporting ~+6% re-leasing spreads and further cap rate compression through 2029.
Big returns
The note reveals that Bell Potter has upgraded the ASX dividend share to a buy rating (from hold) with a trimmed price target of $1.20 (from $1.25).
Based on its current share price of $1.05, this implies potential upside of 14.3% for investors over the next 12 months.
The broker is also expecting dividends of 8.6 cents per share in FY 2027 and FY 2028, before an increase to 8.8 cents per share in FY 2029. This represents dividend yields of 8.2%, 8.2%, and 8.4%, respectively.
Commenting on its upgrade, Bell Potter said:
HDN has materially underperformed and screens as oversold, trading at an 8.1% div yield and 12.0x P/E (vs 6.9% & 14.1x passive REIT sector avg), despite FY27 marking the trough in earnings. We see growth returning in FY28 (+2.5%) with stable topline growth supported by favourable retail sector supply/demand dynamics. We upgrade HDN to a Buy recommendation following its recent underperformance (- 19.1% last 3 months vs XPJ -14.9%).
