Some ASX stocks can produce very high dividend yields. Here's why owning shares in retailer Accent Group Ltd (ASX: AX1) might lead to excellent passive income in the next few years.
Accent sells numerous shoe brands, including its own businesses, such as Platypus, The Athlete's Foot, Glue Store, Hype, Lulu and Rose, and Stylerunner. The ASX stock also acts as a distributor for global names, such as Skechers, Ugg, Kappa, Hoka, Herschel, Henleys, Sebago, Merrell and Vans.
The Accent share price is still more than 20% lower than its all-time high in 2021, as shown in the chart below.
I believe there are a few compelling reasons why the business' dividend income looks so appealing.
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Are big dividends incoming?
Accent, like many other ASX retail shares, typically trades at a low price/earnings (P/E) ratio.
A lower earnings multiple usually boosts the dividend yield. Accent also maintains a fairly generous dividend payout ratio.
When we combine those different elements, we'll have an eye-catching passive income payout from an ASX stock.
According to the estimates from the broker UBS, owners of Accent shares could receive an annual payout of 16 cents per share in FY25. At the current Accent share price, that translates into a fully franked dividend yield of 7.2% and a grossed-up yield of 10.2%.
But I don't want to see just one year of big dividends; it's preferable to see stability and growth.
Of course, dividends can't be guaranteed, particularly from a retailer. However, UBS has currently pencilled in dividends per share of 18 cents per share in FY26, 19 cents per share in FY27, and 20 cents per share in FY28.
That means in FY28, the business could be paying a grossed-up dividend yield of 12.8%.
Those dividends are expected to come as net profit after tax (NPAT) is predicted to grow from $84 million in FY25 to $109 million in FY28.
Promising trends for the ASX stock
UBS points out that footwear appears to perform more strongly than the apparel sector.
In a recent trading update, Accent advised that trading across the group improved in the second half of FY24, with like-for-like sales ahead of the prior year by 4.1%. For the full year, total like-for-like sales were up 1.7% year over year.
Accent expects to report group earnings before interest and tax (EBIT) in the range of $109 million to $111 million.
The company is benefiting from the increased scale of its store rollout across various brands. It's seeing strong momentum in Skechers, The Athlete's Foot, Hype DC, Stylerunner, Nude Lucy, and Hoka.
UBS suggests the EBIT margin could increase from 7.8% in FY24 to 9.5% in FY25 and 10.1% in FY26.
I think the ASX stock could be a contender as a rebound opportunity, particularly if household finances and confidence start improving after this difficult inflationary period.
