This ASX share could pay a 16% dividend yield by 2025

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computerA woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer

The ASX share Dusk Group Ltd (ASX: DSK) could pay an extremely high dividend yield in the coming years. In fact, it could be one of the highest yields that investors can find on the ASX by FY25.

Dusk is a retailer of home fragrance products designed by the company and exclusive to Dusk. Its products include candles, ultrasonic diffusers, reed diffusers, and essential oils, as well as fragrance-related homewares.

The business has seen plenty of volatility since the start of COVID-19. The Dusk share price has dropped by more than 20% since mid-January, meaning the dividend yield is now higher.

Despite the fall, it’s worth noting the business has a market capitalisation of $96 million according to the ASX, while having net cash of $32.9 million at the end of the FY23 half-year result. A third of the company’s market capitalisation is backed by cash.

Dividend expectations for the ASX share

Dusk’s earnings and dividend are expected to fall in FY23, according to Commsec. The business is currently valued at eight times FY23’s estimated earnings with a possible grossed-up dividend yield of 12.3%.

But the business could see rising earnings and dividends by FY25 as the company expands and benefits from the (hopeful) improvement in economic conditions.

Dusk’s earnings per share (EPS) could rise to 25 cents by FY25, which could allow it to pay an annual dividend per share of 18 cents. This would represent a grossed-up dividend yield of around 16%.

The dividend yield and income alone from Dusk could deliver strong returns for investors.

What will help Dusk deliver earnings growth through the coming period?

In the first seven weeks of the second half of FY23, the business reported total sales were down 3% year over year. However, it had a number of positive comments to make:

The gross margin rate remains slightly above pcp [prior corresponding period] and inventory is clean. The Company expects to open a further 6 stores in Australia in 2H FY23 and the NZ store trial will continue with important learnings being implemented.

Our strategic focus on strong execution and a nimble operational model is unchanged. We operate a multi-channel business model with a differentiated and exclusive range and a compelling relative price proposition. We offer customers an affordable gift or personal luxury. These factors have been at the heart of our historic success, and we expect they will remain essential to our performance. The development of innovative new products that represent great value for money to our growing customer base will continue as we navigate through a challenging macro-economic environment.

Foolish takeaway

Dusk is doing what it can to set up growth for the future, and forecasts suggest that Dusk’s dividend yield is going to be very large in the next few years. The business could also be attractive to investors because of its very low price/earnings (p/e) ratio.

The post This ASX share could pay a 16% dividend yield by 2025 appeared first on The Motley Fool Australia.

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More reading

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 recommended Dusk Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia

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