Experts have rated the two ASX dividend shares in this article as a buy. That means that brokers think the share price is attractively valued and the projected dividend yield is relatively high.
Businesses that pay a sizeable part of their profit out each year as a dividend can provide investors with elevated income.
Here are two businesses that are buy-rated:
Inghams Group Ltd (ASX: ING)
Inghams is one of the biggest poultry businesses in Australia. In the first half of FY22, the company’s core poultry volume was 237.1kt [kilotons]. To put into context how much poultry we’re talking about, one kt is equivalent to 1,000 metric tonnes.
The company’s shares are currently rated as a buy by the broker Credit Suisse, with a price target of $4.05. In FY23, the broker is expecting Inghams to pay a grossed-up dividend yield of 8.6%.
The ASX dividend share’s FY22 first half reflected the “resilience” of the business, according to management, as well as the “ongoing benefits of the company’s continuous improvement program”.
Inghams has faced COVID-19 impacts, like many other businesses. However, the company is confident about the future as the impacts of the Omicron variant recede. Inghams has dealt with “significant” cost pressures with overtime, transport, and compliance costs.
HY22 saw underlying net profit after tax (NPAT) growth of 5.9% to $39.7 million, though the first few weeks of the second half saw the company’s profitability hit by Omicron impacts.
Nick Scali Limited (ASX: NCK)
Nick Scali is one of the largest furniture businesses in Australia. It operates both Nick Scali and Plush-Think Sofas, after acquiring this business.
It’s currently rated as a buy by the broker Citi, with a price target of $17.60. That implies a potential rise of around 70% over the next year.
Citi was impressed by the FY22 half-year result.
Nick Scali reported in HY22 that net profit (only) fell by 6.6% to $35.6 million. The Nick Scali division saw its gross profit margin rise by another 30 basis points to 64.3%.
The outstanding order bank at the end of January 2022 was 70% higher than in the previous year and the ASX dividend share’s suppliers have reinstated normal lead times, which “should facilitate revenue growth over the coming months”.
Nick Scali has a long-term target of at least 85 Nick Scali stores and 90 to 100 Plush stores.
Online sales are another area of potential profit growth for the business. They offer a relatively high earnings before interest and tax (EBIT) margin compared to the rest of the business. In HY22, Nick Scali’s online revenue was $13.7 million, generating an incremental $8 million EBIT contribution.
However, in a trading update, Nick Scali said that trading in January in Nick Scali stores was down 6% due to a 25% decline in store traffic.
Citi is expecting Nick Scali to pay a grossed-up dividend yield of 10.5% in FY22.
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. 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 Scott Phillips.
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