In this era of low interest rates, ASX dividend shares could be the way to generate a higher level of income.
The Reserve Bank of Australia (RBA) has pushed the official Australian interest rate to almost 0%, which makes it hard to make much money from a bank account.
These two businesses are building reputations as ASX dividend shares:
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Accent Group Ltd (ASX: AX1)
Accent has been steadily growing its dividend over the last few years as profit grows as well.
The company's CEO himself, Daniel Agostinelli, has said:
With long-term objectives and incentives linked to driving at least 10% compound earnings per share (EPS) growth, Accent continues to be defined by strong cash conversion and the consistently strong returns it delivers on shareholders' funds.
Accent said it has strong future growth initiatives through its online sales growth, new store rollouts across its different brands and new brands. Not only is it looking to increase its gross profit margins but it's trying to be more cost efficient too.
The shoe business saw pre-AASB-16 earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 44% to $97.5 million, earnings before interest and tax (EBIT) growth of 47.3% to $81.8 million and net profit after tax (NPAT) growth of 57.3% to $52.8 million.
It was that profit growth that allowed the ASX dividend share's board to increase the interim dividend by 52.4% to 8 cents per share.
For the first eight weeks of the second half of FY21, the like for like (LFL) retail sales across the whole network was up 10.7%.
According to Commsec, Accent Group is expected to pay a grossed-up dividend yield of 6.4% for FY21.
Rural Funds Group (ASX: RFF)
Rural Funds is a fairly different real estate investment trust (REIT) compared to most others in the industry. It owns a portfolio of farming assets rather than retail, office or industrial properties.
It owns agricultural real estate in various sectors – cattle, almonds, macadamia, vineyards and cropping (sugar and cotton).
Rural Funds has a target of growing its distribution by 4% per annum for unitholders. It achieves this through a combination of ways.
Rental increases built into the contracts with its high-quality tenants produce organic rental profit growth each year. Those rental increases are either a fixed 2.5% per annum, or linked to CPI inflation, with some having occasional market reviews.
Some of those strong tenants include Treasury Wine Estates Ltd (ASX: TWE), Select Harvests Limited (ASX: SHV), Olam, JBS and Australian Agricultural Company Ltd (ASX: AAC).
Another of the ways that Rural Funds can grow its rental profit is by re-investing some of its retained cash profit into improving its farms for the tenants. This can then make the ASX dividend share's farms worth more in capital value and lead to higher rent over time.
Rural Funds has a large water entitlements portfolio to ensure that tenants have access to the water they need. The water value is a sizeable part of the overall underlying Rural Funds value.
Rural Funds has forecast a distribution of 11.73 cents per unit in FY22, which translates to a forward distribution of 4.75%.
