Passive income predictionThe broker UBS was impressed by the...

Passive income prediction

The broker UBS was impressed by the company's recent FY25 first-quarter update, particularly with Zip's US operations, which it called a "star performer".

UBS believes that Zip's operating profit (cash EBTDA) margin is expected to continue rising as cost control remains a "key focus". This is despite the likely step-up of US brand marketing and advertising in Australia to promote ZipPlus and a "likely increase in bad debts expense to drive growth".

The broker is expecting Zip's net profit after tax to hit $45 million in FY25 and continue rising in the subsequent years.

UBS is currently forecasting that Zip's bottom line could reach $128 million in FY26, rising to $195 million in FY27, climb again to $247 million in FY28 and finally rise to $286 million in FY29.

If Zip is able to hit those profit forecasts, then UBS is predicting that the ASX buy now, pay later share could start paying a dividend to shareholders.

In FY28, Zip is projected to make earnings per share (EPS) of 19 cents and pay a dividend per share of 9 cents.

Then, in FY29, UBS is forecasting Zip could make EPS of 22 cents and pay an annual dividend per share of 9 cents.

Excluding possible franking credits, the dividend forecast implies Zip could pay a dividend yield of around 3%.