I'd buy 24,272 shares of this ASX stock to build a $2,500 per year second income

The ASX stock Shaver Shop Group Ltd (ASX: SSG) is one of the most attractive options for passive income, in my opinion.

Shaver Shop is not one of the most famous ASX dividend shares, unlike BHP Group Ltd (ASX: BHP) or Westpac Banking Corp (ASX: WBC). But, in some ways, it could be a much more attractive option.

The company is an Australian and New Zealand specialty retailer of male and female personal grooming products. It has 127 Shaver Shop stores across ANZ, selling products based on electric shavers, clippers, trimmers, and wet shave items. The company also sells oral care, hair care, massage, air treatment, and beauty categories.  

Its business model is to provide a wide range of quality brands at competitive prices. Its market position has enabled the business to negotiate exclusive product terms with suppliers.

The ASX stock may not seem like one of the top options for dividend income, but let's look at some of the positives.

Large dividend yield

The latest dividend from the business was pleasingly high, and with the current Shaver Shop share price of $1.20, the dividend yield looks exceptionally attractive.

When the company announced its FY26 results in August, the board of directors decided to pay an annual dividend of 10.3 cents per share, the same as in FY25. That payout translates into a trailing dividend yield of 8.6% excluding franking credits and 12.25% including franking credits.

Of course, we shouldn't invest in a business just because of a high dividend yield; it also needs to demonstrate reliability. I'll now mention how reliable Shaver Shop's dividend has been over the last several years.

Reliable payouts

A retailer of shaving items may not seem as though it can provide consistent dividends, but that's exactly what it has achieved.

It may help that our hair keeps growing in all economic conditions, creating a certain level of demand for Shaver Shop. Plus, the company has worked to expand the business by opening new stores, launching its own product line, and securing additional exclusive products from suppliers.

The company started paying dividends in 2017 and has grown its payout in most years since, with only a couple of years when it maintained its annual payout.

Both Westpac and BHP have reduced dividends this decade, yet Shaver Shop has a strong record of reliability.

Shaver Shop is almost at a decade of passive income resilience, and I think it can continue to deliver a good dividend because of its reasonable dividend payout ratio.

In FY26, the ASX stock generated 11.3 cents per earnings per share (EPS), so the dividend payout ratio was 91%. Even if profit falls a little in FY27, amid the risk of the high cost of living, there is room with the EPS to fund the same level of dividend.

$2,500 per year of a second income

With how high the dividend yield is, it wouldn't take a huge investment to deliver the desired dividend income goal.

Assuming the annual dividend of 10.3 cents per share is repeated in FY27, it would take 24,272 Shaver Shop shares to unlock $2,500 per year of a second income (not including the franking credits).

At the time of writing, that investment would total just over $29,000. I'd happily make that investment today, as long as the portfolio is diversified with other names too.

The post I'd buy 24,272 shares of this ASX stock to build a $2,500 per year second income appeared first on The Motley Fool Australia.

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 BHP Group and Shaver Shop Group. 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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