ASX dividend stocks: Here’s a diamond in the rough I’d buy yielding more than 6%

Some of the smaller ASX dividend shares could be contenders for good dividends and growth in the future. I think one name to consider is Paragon Care Ltd (ASX: PGC).

After going through a difficult period over the last few years, the ASX healthcare share seems to be on a positive path again.

It’s mainly focused on the sale of medical equipment and devices, along with related consumables and maintenance support. Paragon is also involved in services and technology. The business has a presence in Australia, New Zealand, and Asia.

Management expect growth

In FY22, the business made $248 million in revenue, with Paragon forecasting this to reach $320 million in FY23. In the last financial year, it also made $30.2 million of underlying earnings before interest, tax, depreciation and amortisation (EBITDA) – this is expected to grow by 30% in FY23.

The FY23 EBITDA is expected to grow organically by between 5% to 10%, weighted more to the second half.

After that, Paragon expects organic growth to be more than 10% per annum (which excludes acquisitions). This comes from a “broad range of growth initiatives across the pillars in both ANZ and Asia”.

The ASX dividend stock says that it’s targeting $100 million of EBITDA by FY26 through a combination of organic growth and acquisitions.

Paragon Care Asia, which was previously known as Quantum, already has a presence in Thailand, South Korea, the Philippines, China, Vietnam, and New Zealand, with targeted markets of Japan, Indonesia, and Singapore. It’s going to leverage existing supplier partnerships, aim to win new suppliers on the basis of its “comprehensive Asia Pacific footprint”, and support the Immulab push into Asia.

The overall Paragon plan is to generate a stronger and more executable pipeline of growth, and have a “conscious bias towards high quality earnings rather than revenue growth per se”.

Dividend potential

The ASX dividend share grew its annual dividend by 20% in FY22 compared to FY21.

Paragon’s board has stated that it is focused on sustained growth in shareholder wealth, consisting of “dividends and growth in share price”.

In 2022, it paid an annual dividend per share of 1.2 cents, translating into a current grossed-up dividend yield of 5.4%. However, that’s the past.

If someone were to invest today, it’s the FY23 dividend that they’d receive.

Commsec numbers suggest that Paragon could pay an annual dividend of 1.5 cents per share, which would be a grossed-up dividend yield of 6.8%.

While they are just projections, the numbers on Commsec suggest the business is valued at 12 times FY23’s estimated earnings and could keep growing earnings each year to FY25, when it might pay an annual dividend of 2 cents per share. This could be a potential grossed-up dividend yield of more than 9%.

While this is a small business with a fair amount of risk, I like that it operates in the healthcare space, which may mean lower risk — and it’s already profitable.

The post ASX dividend stocks: Here’s a diamond in the rough I’d buy yielding more than 6% appeared first on The Motley Fool Australia.

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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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