A number of ASX dividend shares could be good ideas to own for income.
It’s a tough environment for income-focused investors right now with how close to 0% the official interest rate is at the moment.
But there are still some businesses that could represent good value, growth and offer a solid starting yield:
Rural Funds Group (ASX: RFF)
Rural Funds currently has a forward distribution yield of 5% for FY22 after management confirmed that the real estate investment trust (REIT) distribution would rise by 4% again.
That’s actually the aim of the farmland landlord – to grow the distribution by 4% each year.
It owns a number of different farm types including almonds, macadamias, vineyards, cattle and cropping (sugar and cotton). However, Rural Funds plans to turn the sugar properties into macadamia to generate more earnings in the future.
A key part of the growth is the rental indexation that is built into its contracts with tenants like JBS and Olam. The increases are either a fixed 2.5% annual increase, or it’s linked to CPI inflation.
Rural Funds also has a strategy where it invests some of its retained profit each year into productivity improvements, further increasing the capital value and rental potential of those farms. It has been focusing on cattle farm improvements in recent years.
It was one of the few REITs to increase the distribution during FY20 despite all of the impacts of COVID-19.
Rural Funds’ farms are spread across a variety of states and climactic conditions, which means it has a diversified portfolio.
Kogan.com Ltd (ASX: KGN)
Kogan.com currently has a trailing grossed-up dividend yield of 3.3%. According to Commsec, Kogan.com could pay an annual dividend per share of $0.49 per share in FY23. This would translate to a grossed-up dividend yield of 5.5% at the current Kogan.com share price.
The e-commerce business has been growing its dividend for the last few years since it started paying one.
In the FY21 half-year result, the board grew the interim dividend by 113.3% to 16 cents per share, which is a big increase for an ASX dividend share. That was after an increase of the adjusted earnings per share (EPS) of 211.7% to $0.35 per share, whilst statutory EPS was 135.1% higher to $0.20.
That means that the Kogan.com interim dividend represented a dividend payout ratio of 80%, leaving plenty of profit for re-investment back into more growth for the business.
Kogan.com is growing various parts of its business at a fast rate. Its exclusive brands and marketplace businesses are increasing in size at a very fast pace at the moment.
One area that Kogan.com is looking to for more growth is New Zealand after its Mighty Ape acquisition. Mighty Ape now has 719,000 active customers and December 2020 trading showed “strong sales” with revenue of $20 million and gross profit of $5.4 million.
The ASX dividend share is continuing to focus on more growth by expanding its exclusive brands and enhancing and developing Kogan Marketplace.
In January 2021, Kogan.com saw gross sales increase by 45% year on year which included 111.6% growth of Kogan Marketplace, 54.6% growth of exclusive brands, 102% growth of gross profit and 90% growth of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA).
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Returns As of 15th February 2021
More reading
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Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool Australia has recommended Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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