Baby Bunting Group Ltd (ASX: BBN) is an All Ordinaries (ASX: XAO) stock, or ASX All Ords stock, that has a significant valuation decline. But, it's projected to make a big earnings recovery over the next few years, which could also mean a strong dividend yield by FY25.
Baby Bunting is a retailer that sells a variety of products for young children including prams, car seats, furniture, toys, clothes and so on.
It has been facing heightened competition, which hurt the gross profit margin and overall profitability. Over the past year, the Baby Bunting share price has dropped by around 50%.
But, this could be an opportunistic time to consider the business when investors are feeling pessimistic.
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Baby Bunting dividend yield expectations
Commsec projections currently suggest that the ASX All Ords stock could pay an annual dividend per share of 11.2 cents, which would be a grossed-up dividend yield of 7.4%.
In FY24, the Baby Bunting annual payout could increase to 13.4 cents, which would equate to a grossed-up dividend yield of 8.9%.
By FY25, the All Ords ASX stock might pay an annual dividend per share of 16.1 cents. This would be a grossed-up dividend yield of 10.6%.
Earnings per share (EPS) are also expected to rise, which will be key for funding those larger dividends.
Commsec numbers suggest that the business might generate EPS of 16.3 cents this year, putting it at 13 times FY23's estimated earnings. But, by FY25, EPS could jump to 24.2 cents. This would mean the current Baby Bunting share price is valued at just 9 times FY25's estimated earnings.
What could drive the All Ords ASX stock's earnings higher?
The business has outlined its strategy and future initiatives, including growing its market share from its core business, investing in digital, growing in new markets and profit margin improvement.
The All Ords ASX stock continues to roll out new stores. When it announced its FY23 half-year result, it said it had 69 stores in Australia and two in New Zealand. The company thinks it can reach 110 stores in Australia and 10 in New Zealand.
Baby Bunting is working on its marketplace offering, which presents a "significant revenue opportunity". It's working with a number of suppliers and plans to have 1,000 additional products as part of the new curated marketplace.
The business was already seeing the gross profit margin in January 2023 being in line with its recovery plans and "up" on the prior year.
If it's successful at turning things around, it would presumably help the Baby Bunting share price and the dividend. So, it could achieve good capital growth and good dividends from here.
