ASX dividend stocks that trade on a relatively low price/earnings (P/E) ratio with a fairly high dividend payout ratio can have a pleasing dividend yield. By 2025, the two stocks I'm going to talk about could pay very large dividend yields.
ASX retail shares typically trade on a lower valuation compared to other sectors like technology so they can be good options for dividend income. But bear in mind that a recession can lead to a dividend reduction. This is why I'm focusing on the dividends for 2025, not 2024.
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Step One Clothing Ltd (ASX: STP)
Step One describes itself as a direct-to-consumer online retailer of 'innerwear' (underwear). It has an end-to-end FSC-certified supply chain. The products are "high-quality, organically grown, certified, sustainable and ethically manufactured", according to the company.
With a presence in the United Kingdom and the United States, it has international growth potential. I think this sort of product can see growing demand in a world where more people want sustainable and ethically sourced products.
In the first half of FY24, Step One expects revenue to grow 22%–25% to between $44 million and $45 million. Earnings before interest tax, depreciation and amortisation (EBITDA) may grow by at least 33% to between $10 million and $11 million. In percentage terms, the US has seen the most growth.
According to Commsec, the Step One share price is valued at 16x FY25's estimated earnings with a possible grossed-up dividend yield of 8.9%.
Universal Store Holdings Ltd (ASX: UNI)
Universal Store owns a number of youth fashion brands, which represent retail and wholesale businesses.
Its principal businesses are Universal Store and CTC (trading as the THRILLS and Worship brands). It is also trialling the Perfect Stranger brand as a standalone retail concept. It has more than 90 stores in Australia and is opening more, including at least 10 new stores in FY24.
The company's profit margins have been stable in FY24 to date. It has focused on managing its cost of doing business with a series of initiatives. These include "optimising store labour and targeted distribution centre productivity enhancements".
At the AGM, it said earnings before interest and tax (EBIT) was approximately $2.1 million ahead of the prior corresponding period, driven mostly by the added earnings contribution of CTC.
According to Commsec, the Universal Store share price is valued at under 11x FY25's estimated earnings with a possible grossed-up dividend yield of 8.8%.
