ASX dividend shares have the ability to deliver a combination of both investment income and potential capital growth over time.

However, a business isn’t a better pick just because it pays a dividend. But I think it’s worth paying attention to businesses that are capable of growing earnings while paying dividends.

We don’t have a crystal ball to know what’s going to happen next. But we can analyse company plans as well as longer-term trends or projections.

Amid the current market volatility, I think the below two ASX dividend shares can pay attractive income while investors ride through the ups and downs of this era of inflation and rising interest rates.

Metcash Limited (ASX: MTS)

Metcash has three pillars to its business – food, liquor, and hardware. It’s a supplier to a number of well-known businesses including IGA, Foodland, Cellarbrations, The Bottle-O, IGA Liquor, Duncans, Thirsty Camel, Big Bargain, and Porters. In hardware, Metcash has the brands Mitre 10, Home Timber & Hardware, and Total Tools.

In FY22, Metcash decided to pay a total annual dividend of 21.5 cents per share, which was an increase of 22.9% compared to FY21.

The ASX dividend share targets a dividend payout ratio of around 70% of underlying net profit after tax (NPAT). This reflected higher underlying earnings – in FY22, Metcash’s underlying NPAT grew 18.6% to $299.6 million.

Metcash is doing a number of things to try to grow profit. These include refreshing stores, improving its logistics, planning a new distribution centre, growing its store networks, and selling more goods online. In the first seven weeks of FY23, Metcash reported “strong sales momentum” with group sales growth of 8.6%.

According to CMC Markets data, Metcash is expected to pay a grossed-up dividend yield of 7.4% in FY23.

Baby Bunting Group Ltd (ASX: BBN)

Baby Bunting is another ASX dividend share that I think is worth looking at.

The company has a national store network that sells a wide variety of products for infants and toddlers such as prams, furniture, clothes, and toys.

This ASX dividend share has grown its dividend for shareholders each year since 2019, which includes through the COVID-19 years.

In the company’s latest result, the FY22 half-year report, it showed 15.4% growth in earnings per share (EPS), allowing the dividend to be grown by 13.8% to 6.6 cents per share. This growth partly occurred due to 10% total sales growth. This included 6.8% comparable store sales growth and 32.6% online sales growth. Online made up 23.8% of total sales.

Baby Bunting is also doing a number of things that can help its profit grow in the coming years. Namely, it wants to grow its Australian store network to at least 100 stores as well as open at least 10 stores in New Zealand. It also plans to grow online sales, increase its private label and exclusive product sales (which come with a higher gross profit margin), improve its supply chain, expand its product offering, and find efficiencies around the business.

Baby Bunting notes that its products are less discretionary and more essential in nature.

As at 9 February 2022, the company reported that comparable store sales had grown by 3.6% in the previous six weeks, with online sales growth of 30%.

In FY23, CMC Markets has an estimate of an annual dividend of 18 cents per share, which translates as a forward grossed-up dividend yield of 5.5%.

The post What I love about these 2 ASX dividend shares 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 recommended Baby Bunting. 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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