Got money to invest for dividends? Here are 2 ASX shares that could be buys

The 2 ASX dividend shares in this article might be good for income. One idea is funeral business Propel Funeral Partners Ltd (ASX:PFP).

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little pig piggy banks falling from the blue sky, indicating a windfall of income from ASX dividend shares

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The two ASX dividend shares in this article offer relatively high income yields and are growing profit.

Businesses that are producing both profit growth and increasing dividends might be interesting to income-seeking investors.

Propel Funeral Partners Ltd (ASX: PFP)

In FY21, Propel is expected to pay a grossed-up dividend yield of almost 5% according to Commsec.

Propel is the second largest funeral provider in Australia and New Zealand. It has a sizeable market share of regional markets and it’s steadily growing in large cities largely through acquisitions.

There is a long-term tailwind behind Propel. According to the ABS, death volumes in Austrlaia are expected to increase by 2.7% per annum from 2019 to 2030 and then by 2% per annum from 2030 to 2050.

In the 2020 year, Propel had claimed a market share of around 7%. It continues to focus on its investment strategy on finding more assets and infrastructure with the death market. It’s also looking to explore other potential acquisitions.

Propel said that recent trading indicates that death volumes may be starting to revert to long-term trends with positive comparable funeral volume growth in the three months to mid-February 2021.

The HY21 result saw the ASX dividend share continue to grow. Revenue rose 3.5% to $59 million, operating earnings before interest, tax, depreciation and amortisation (EBITDA) grew 14.8% to $19 million, operating net profit after tax (NPAT) rose 7.6% to $8.4 million and operating earnings per share (EPS) grew 7% to 8.5 cents.

That profit growth funded a 50% increase of the interim dividend to 6 cents per share. That represented a payout ratio of 82% of distributable earnings, leaving some for re-investment. 

Adairs Ltd (ASX: ADH)

In FY21, Adairs is projected to pay a grossed-up dividend yield of 8% according to the forecast on Commsec.

The homewares and furnishings business has been rapidly growing its profit during these strange COVID-19 times.

It has been focused on ensuring a strong gross profit margin in this period of high demand for home improvement. In the first six months of FY21, Adairs’ group gross profit margin improved 545 basis points to 66.1%. The Mocka margin rose 230 basis points to 53.4% and the Adairs gross margin improved 690 basis points to 67.8%. It benefited from co-ordinated sourcing and retail pricing initiatives, as well as reduced depth of markdowns and 29 fewer storewide promotion days.

Adairs is also benefiting from operating leverage. The half-year result saw the cost of doing business ratio decline 791 basis points to 35.8% thanks to disciplined cost control.

The ASX dividend share is focused on an omni retail strategy. That means it wants to serve the customer in whatever sales channel they want, not just retail stores. It’s working. Online sales made up more than a third of total sales and the last 12 months to December 2020 showed online sales of $180.2 million. The Linen Lover Membership now exceeds more than 900,000.

Whilst the profitability is growing across the entire business, the online contribution margin is particularly strong at 44.6%, compared to 36.1% for stores. There’s a higher gross profit margin with online. There is a lower absolute cost to fulfil each online order due to process and productivity improvements, as well as lower delivery costs. Online has a higher return on investment (ROI) on marketing despite increasing spending. Management believe there is continued benefits of economies of scale in this channel.

In the first seven weeks of the second half of FY21, Adairs saw group sales growth of 25%.

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Returns As of 15th February 2021
Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends ADAIRS FPO. The Motley Fool Australia has recommended ADAIRS FPO and Propel Funeral Partners 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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