The forecast dividend yield on this ASX retail share looks compelling

We're supposedly in the midst of a cost-of-living crisis, but it appears someone forgot to tell the team at Universal Store Holdings Ltd (ASX: UNI).

The youth-focused retailer put out a trading update this week to coincide with its annual general meeting, and the news was all good.

Sales resilient in the face of headwinds for ASX retail stock

The company's group sales for the financial year to date are up 9.3%, and its new store rollout is on track to open 16 to 20 new stores this financial year.

Chief Executive Officer Alice Barbery not surprisingly said it had been "a pleasing start to the year, with positive like-for-like growth in a challenging macroeconomic environment and against strong prior year comparatives''.

She added:

Gross margins remain robust with our disciplined pricing strategy and expansion of the Perfect Stranger retail format. The Group is well positioned heading into the peak trading period with healthy inventory and a customer centric mindset.

The company's Perfect Stranger stores performed particularly well in the financial year to date, with like-for-like sales up 11.6%.

The company's chair, Peter Birtles, told the AGM that Universal Store shares had outperformed the ASX 300 Consumer Discretionary Index by more than 50% since the company listed in November 2020 and by more than 75% across the three years to June 2026.

Mr Birtles said the board was confident about the company's prospects for long-term growth.

He added:

We have a strong business model, a robust balance sheet, high-quality leadership and most importantly, an engaged and energetic team. Our focused range curation, private label development, and ongoing store and digital expansion position us to drive like-for-like sales growth and margin improvement.

He also mentioned that the company increased its dividend from 38.5 cents to 43 cents in FY26.

Dividend yield expected to grow for ASX retail stock

The team at UBS have run the numbers on Universal Store, and they believe the strong dividends will continue to flow.

In a new research note sent to clients this week, they have forecast a dividend yield of 5.6% this financial year, rising to 7.7% by FY31.

They also have a bullish share price target on the stock, predicting it will rise to $9 over 12 months, compared with the share price of $7.40 at the time of writing.

This would constitute a 21.6% increase if achieved.

UBS said:

We retain our Buy rating as the risk/reward looks attractive given the comparatively more resilient youth consumer, merchant execution, store rollout potential, and medium-term EBIT margin expansion opportunities.

Universal Store is valued at $587.7 million.

The post The forecast dividend yield on this ASX retail share looks compelling appeared first on The Motley Fool Australia.

Motley Fool contributor Cameron England 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 Universal Store. 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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