This ASX dividend share is predicted to pay a 10% yield in 2026

This stock could be a bargain buy at this price. It could unlock large cash flow.

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ASX dividend share Universal Store Holdings Ltd (ASX: UNI) may pay enormous dividends in 2025 and 2026 if things go well for the retail company.

Universal Store owns a group of what it describes as "premium youth fashion brands". Spearheaded by its Universal Store brand, it also has the THRILLS, Worship and Perfect Stranger brands. It's trialling the Perfect Stranger brand as a standalone retail concept.

At the last count, it operates 98 physical stores across Australia, as well as three online stores.

How big could the dividend be?

The company has increased its dividend payouts since it started paying them in 2021. In FY23, it paid an annual dividend per share of 22 cents. This is a trailing grossed-up dividend yield of 4.6%.

According to Commsec projections, the business may pay an annual dividend per share of 23.1 cents in FY24. This increase would be a grossed-up dividend yield of 8%.

In FY25, the ASX dividend share is then projected to pay an annual dividend per share of 25.9 cents — a grossed-up dividend yield of 9%.

Going onto FY26, Universal Store is forecast to pay an annual dividend per share of 28.2 cents, which would be a grossed-up dividend yield of roughly 10%.

In other words, the company is expected to keep growing its payout throughout this period and keep the dividend growth streak alive.

Can profit grow over the long term?

The company is projected to generate earnings per share (EPS) of 46.2 cents in FY26, which would put it on a forward price/earnings (P/E) ratio of just 9. Retailers typically trade on a low earnings multiple, which enables an appealing dividend yield, if they pay a dividend.

There are a number of things the ASX dividend share is doing to grow profit.  

It's opening new stores across its brands, with the growth of Perfect Stranger particularly interesting. The already-opened newer stores are maturing, meaning they're reaching their full potential. The ASX dividend share is also working on "developing [the] online experience and integration with physical stores".

Another area of focus is that Universal Store is improving the productivity of its operations and technology.

If the employment rate of younger Aussies can stay relatively strong during this period, which it appears to be so far, then sales and profit could continue to be strong. That may unlock the dividend yields of the future that I've talked about.

Should you invest $1,000 in Universal Store Holdings Limited right now?

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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