2 top ASX dividend shares that just delivered big growth

Adairs and Inghams just delivered big growth in FY21 with a higher dividends.

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Some leading ASX dividend shares have reported their FY21 results which showed profit growth as well as much higher dividends.

Reporting season is a useful time to get insights into how a business is performing. A board’s decisions into the dividend declarations can potentially provide insight into the leadership’s thoughts about the strength and medium-term outlook for the business.

Here are two ASX dividend shares that just reported increased dividends:

Inghams Ltd (ASX: ING)

Poultry business Inghams announced that for FY21 its annual dividend would be 16.5 cents per share, fully franked. That was an increase of 17.9% year on year. That represented a dividend payout ratio of 71%. It was in line with its policy of paying between 60% to 80% of underlying net profit after tax (NPAT).

The company experienced both volume growth and operating leverage. Group core poultry volume increased by 4.2% to 446.9kt. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased 9.6% to $448.7 million, underlying net profit after tax grew 57.4% to $86.7 million and statutory net profit after tax rose 107.7% to $83.3 million.

The ASX dividend share also managed to reduce its inventory by $30 million. There was excess frozen processed poultry stock that had built up as a result of the effects of COVID-19. Inventory is now in its desired band.

It has been busy making investments for further growth. Inghams made progress with its two new hatcheries, with the Victorian facility now operational and WA expected to commence around the middle of FY22. In addition, the NZ$17 million investment in a new fully cooked processing line in Auckland is “progressing well” and is expected to be completed in the first half of FY22.

Inghams said it expects to see the consumer recovery restart when vaccination rates increase and the current lockdowns are lifted. Volumes are expected to show continued growth with new business across various channels. Feed costs have stabilised.

Citi rates the ASX dividend share as a buy, with a price target of $4.35. It thinks the Inghams share price is valued at 16x FY22’s estimated earnings

Adairs Ltd (ASX: ADH)

Adairs was another business to unveil a much bigger dividend. It announced a final dividend of 10 cents per share, taking the FY21 full year dividend to 23 cents per share. That was an increase of 109% compared to FY20.

It saw group sales rise by 28.5% to $499.8 million (with a 33.2% increase of Adairs online sales). The underlying Adairs gross margin went up 520 basis points to 66.7%. Underlying earnings before interest and tax (EBIT) grew 97.3% to $109.1 million, statutory net profit rose 80.7% to $63.7 million and earnings per share (EPS) jumped 79% to 37.7 cents.

Physical stores are still an important part of the picture for Adairs. That’s why it opened four new homemaker stores and upsized six stores (four homemakers and two regular stores). The company said that the store upsizing strategy continues to deliver a strong return on investment. The FY22 pipeline for new and upsized stores is a net new two to four stores and it’s planning to upsize a further eight to ten stores. That equates to an increase of 8% or more in gross lettable area over the next 12 months.

The ASX dividend share’s new national distribution centre is expected to be fully operational by the end of September 2021, which, once transitioned, is expected to lead to annual savings of around $3.5 million per annum.

Adairs noted that restrictions are impacting sales in FY22. Adairs stores have seen a 27% decline of sales in the first seven weeks of FY22, contributing to a 11.7% drop in total sales (including online sales). Adairs online sales were up 12.9% and Mocka sales were up 16.1%.

Should you invest $1,000 in Inghams right now?

Before you consider Inghams, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Inghams wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

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 recommended ADAIRS FPO. The Motley Fool Australia owns shares of and has recommended ADAIRS FPO. 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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