Top ASX Dividend Stock Drops 62%: Here’s Why I’m Buying Now

Accent Group Ltd (ASX: AX1), an Australian retail company specializing in footwear, has faced a significant decline of 62% since December 2024. The company owns several prominent shoe retailers, including The Athlete’s Foot, Stylerunner, Nude Lucy, and Platypus. It also retails several global footwear brands like Hoka, Ugg, Skechers, Vans, Timberland, Merrell, and Herschel.

Challenges in the Retail Sector

The business is currently navigating challenging retail conditions. A recent survey conducted by UBS, which involved approximately 1,000 Australian adults, indicates that spending intentions for lifestyle footwear may negatively impact Accent Group. This downturn in the footwear subsector could explain the reduced market and analyst optimism regarding the company’s earnings compared to the previous year.

Diminished Profit Expectations

Despite facing headwinds, Accent Group’s earnings projections appear promising for savvy investors. Analysts forecast that the company’s net profit could decrease to $45 million in FY26. However, it is expected to pay an annual dividend of 5 cents per share for that fiscal year. This could translate to a grossed-up dividend yield of 7.6% when including franking credits.

Future Dividend Projections

Looking ahead, dividends are projected to increase in the coming years:

• 6 cents in FY27
• 8 cents in FY28

These increases suggest that by FY28, investors might enjoy a grossed-up dividend yield of around 12%, based on current valuations.

Why Invest in Accent Group Now?

Several factors suggest that this may be a strategic time to invest in Accent Group:

• Frasers has increased its stake to 21.32%, indicating confidence in the company’s long-term prospects.
• The planned rollout of Sports Direct Australia stores, in collaboration with Frasers, could unlock new revenue streams through popular brands such as Everlast and Karrimor.

Potential for Earnings Recovery

The trajectory of Accent Group’s return hinges on its ability to rebound in FY27 and subsequent years. Analyst expectations indicate a gradual improvement in operating profit margins (EBIT) over the coming years:

Given these insights, Accent Group may be viewed as an undervalued investment opportunity for those looking to capitalize on potential market recovery.