2 ASX dividend share opportunities rated as buys by brokers

A happy construction worker or miner holds a fistfull of Australian money, indicating a dividends windfall

There are a number of ASX dividend shares that could be options for income.

The businesses in this article have been rated as buys by brokers, meaning they think they are good value.

A business isn’t automatically worth owning just because it pays a dividend. But these two are rated as worth owning:

Deterra Royalties Ltd (ASX: DRR)

As the name suggests, this business owns royalties. Mining royalties to be precise. It has the MAC royalty, the Doral royalty interests, the Sheffield royalty interest and the Cable Sands royalty interest.

In FY21, the MAC royalty (the key asset) performed “strongly” thanks to a strong iron ore price environment.

This company has a dividend policy of paying out 100% of net profit after tax (NPAT), franked to the maximum extent possible. It has low debt and low costs, allowing for opportunistic investment and a highly scalable corporate structure, according to the company.

The ASX dividend share is looking to increase its scale and diversification with complementary value-adding acquisitions.

It’s currently rated as a buy by the broker Morgan Stanley, with a price target of $4.55. That suggests a potential 20% increase of the Deterra Royalties share price over the next 12 months, if the broker is right.

In terms of the dividend, Morgan Stanley thinks Deterra Royalties will pay a dividend of 23.8 cents per share in FY22, which translates to a grossed-up dividend yield of 9%.

Charter Hall Retail REIT (ASX: CQR)

This is a real estate investment trust (REIT) that is operated by the property management business Charter Hall Group (ASX: CHC) to own and manage retail properties.

It has around 350 properties that are worth a total of $3.6 billion, with an occupancy rate of 98.3% and a weighted average lease expiry (WALE) of 7.5 years. This gives the business a high level of income visibility for the next few years.

COVID-19 certainly impacted the value and rental profit of this business. That may explain why the Charter Hall Retail REIT share price is still 17% lower than the level it was at just before the COVID-19 crash.

However, the business is expecting that specialty sales and traffic will rebound strongly after lockdowns finish, after seeing this pattern with previous lockdowns.

It’s going to pay FY22 distributions based on its cashflow.

In FY21 the ASX dividend share paid a distribution of 23.40 cents per unit (which was down 4.6% on FY20).

The brokers at Macquarie Group Ltd (ASX: MQG) rate this REIT as a buy, with a price target of $4.24. They think that Charter Hall Retail REIT is going to pay a FY22 total distribution of 24.9 cents per unit and a FY23 total distribution of 26.80 cents per unit, which equates to yields of 6.1% and 6.6% respectively.

Whilst the net rental profit has been impacted, it has seen its valuation per unit increase for investors. Over FY21, the net tangible assets (NTA) increase by 6.9%, compared to FY20, to $4.01. That means the current Charter Hall Retail REIT share price is now roughly in line with its NTA.

Its portfolio look-through gearing is 33.1%, with balance sheet gearing of 25.7%. But it still has available investment capacity of $308 million, consisting of cash and undrawn debt facilities.

The post 2 ASX dividend share opportunities rated as buys by brokers appeared first on The Motley Fool Australia.

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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 no position in any of the stocks mentioned. 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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