2 ASX dividend shares rated as top buys by brokers

Super Retail is one ASX dividend share liked by brokers.

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There are a group of ASX dividend shares that are well liked by brokers.

Businesses that are rated as buys by analysts whilst also having good yields may be opportunities for people looking for income. However, there’s always a risk that the broker(s) are wrong about a business.

Here are two ASX dividend shares that some brokers are a fan of:

Super Retail Group Ltd (ASX: SUL)

Super Retail is a retailer that’s liked by a number of different brokers. It has retail brands including Supercheap Auto, Rebel, BCF and Macpac.

It’s currently rated as a buy by at least four different brokers including Credit Suisse. The price target is $14.45, which suggests an increase of the Super Retail share price of around 10% over the next 12 months, if Credit Suisse is right.

The company has seen a large amount of growth since the onset of COVID-19. Its store numbers and active club members have also been increasing over the last few years.

Online sales are playing an important part of the picture, with a large amount of growth. In the first half of FY21, it saw growth of online sales of 87%. This also came with “strong” operating leverage. Online sales were $237 million in the first half of FY21, up from $127 million in the first half of FY20.

The ASX dividend share saw its margins maintained in the second half of FY21, like it was in the first half, thanks to strong customer demand. This meant there was limited promotional activities.

In the first 44 weeks of FY21, Super Retail saw 28% growth of like for like sales.

Credit Suisse believes that at the current Super Retail share price, it will pay a grossed-up dividend yield of 5.4%.

Metcash Limited (ASX: MTS)

Metcash is a diversified retailer. It supplies national networks of IGA and Foodland. It supplies liquor businesses like Cellarbrations, The Bottle-O, IGA Liquor, Duncans and Thirsty Camel.

The ASX dividend share also has a number of hardware brands including Mitre 10, Home Timber & Hardware and a majority ownership of Total Tools.

It’s currently rated as a buy by at least three brokers. One of the brokers that rates Metcash as a buy is Citi.

The broker points to market share gains in supermarkets and a strong performance in hardware as reasons to like the business.

FY21 saw hardware sales revenue go up by 24.7% to almost $2.6 billion and hardware underlying earnings before interest and tax (EBIT) grew 61.5% to $136 million.

The business has committed to return a significant amount of capital to shareholders while continuing to invest in future growth. The target dividend payout ratio has been increased from 60% to 70%. The FY21 annual dividend was increased by 40% to 17.5 cents. It also announced a $175 million share buy back.

At the time of the FY21 result release, it announced that it increased its ownership of Total Tools from 70% to 85% for a cost of $59.4 million.

At the current Metcash share price, Citi believes it’s going to pay a grossed-up dividend yield of 6% in FY22.

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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 owns shares of and has recommended Super Retail Group Limited. 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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