I think that Nick Scali Limited (ASX: NCK) is one of the most underrated ASX dividend shares on the ASX. In FY25, it could pay a very handsome dividend, resulting in strong cash returns, regardless of what the Nick Scali share price does.
Over the past year, the Nick Scali share price has dropped by over 20%. Since 3 February 2023, it has fallen by close to 30%.
The fall of Nick Scali's valuation means that the forward dividend yield, whatever it ends up being, is boosted.
Let's have a look at how big that dividend is currently projected to be.
ASX dividend share's FY25 payout estimate
Forecasts are just educated guesses, so don't take these estimates as guaranteed at all.
The estimates on Commsec are as good as any projection at this stage.
At the moment, for FY25, Nick Scali is projected to pay an annual dividend per share of 61.3 cents. At the current Nick Scali share price, that translates into a grossed-up dividend yield of 9.7%.
There aren't too many S&P/ASX All Ordinaries Index (ASX: XAO) dividend shares that are projected to pay a dividend yield that large in the 2025 financial year.
Of course, there may be a bit of dividend and profit pain before then, in FY24.
In FY24, the dividend per share is currently expected to be 58.8 cents per share. That translates into an FY24 grossed-up dividend yield of 9.25%. In other words, the dividend yield could remain above 9% despite an expected decline in profit in FY24.
The good nor the bad to last forever?
The COVID-19 period saw a large increase in demand for Nick Scali's furniture as people put greater value on spending on their homes, and had the funds to do it.
It would have been unrealistic to think that Australians were going to buy more furniture year after year. I do expect that FY24 is going to show a sizeable decrease in profit compared to FY23. We'll just have to see what the size of the decline looks like.
But, I think it would also be unwise to think that weaker retail conditions are going to last forever for the ASX dividend share.
The current numbers suggest that Nick Scali's earnings per share (EPS) could increase by 7.5% in FY25, compared to FY24.
Nick Scali can grow its underlying operations by expanding the store numbers of Nick Scali and Plush, growing online earnings and expanding their ranges. The business can also be an indirect beneficiary of Australia's growing population.
Is the Nick Scali share price good value?
Nick Scali shares are currently priced at under 8 times FY23's estimated earnings and under 10x FY25's estimated earnings.
I think Nick Scali shares have been oversold when considering how earnings in FY25 and beyond may look more promising than how FY24 earnings may perform.
Even if the ASX dividend share's same store sales don't perform that well, the expanding store count can help offset some of the declines. I'd be happy to buy it for the sentiment recovery and store network expansion plans.
