2 leading ASX dividend shares to consider for income

Inghams and Nick Scali could be candidates to consider for dividend income.

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Some ASX dividend shares offer yields that may be attractive enough to consider them as potential dividend candidates.

These companies are ones that have been rated as buys by analysts and just paid large dividends in FY21.

Here are two to think about:

Inghams Group Ltd (ASX: ING)

Inghams is a large poultry business. In FY21, its core poultry volume rose 4.2% to 446.9kt. Underlying net profit after tax (NPAT) pre-AASB 16 increased by 28.4% to $101.2 million.

The company decided to increase its annual fully franked dividend by 17.9% to 16.5 cents per share after the increase of profit. This represented a dividend payout ratio of 71%, which was within the company’s targeted dividend payout ratio of between 60% to 80% of underlying net profit.

Inghams also said that its balance sheet is in a strong position, with net debt declining during the period to $240.2 million. The company said this leaves Inghams “well positioned for future growth opportunities”. It was also able to reduce its inventory by $30 million as it reduced its excess frozen processed poultry stock that had built up as a result of the COVID-19 effects.

In terms of an outlook, the ASX dividend share said that volumes are expected to show continued growth with new business across various channels with a consumer recovery restart when vaccination rates increase and the current lockdowns are lifted.

It also said that feed costs have stabilised during the second half. However, volatility in international commodity markets has led to domestic pricing “holding firmer”. The business continues to hold forward purchase cover on key feed ingredients of between three to nine months.

The broker Citi currently rates the Inghams share price as a buy. It’s expecting the FY22 dividend to be 17.8 cents, an increase of around 8%. The projected forward grossed-up dividend yield is 6.2%.

Nick Scali Limited (ASX: NCK)

Nick Scali one of the largest furniture retailers in Australia and New Zealand. It had 61 showrooms at the last count and it continues to assess the new opportunities in line with its long-term showroom network target of 85 showrooms.

FY21 was a year of strong demand for Nick Scali products, which also allowed profit margins to rise substantially.

Sales revenue rose by 42.1% to $373 million and underlying net profit after tax doubled to $84.2 million. The underlying earnings before interest and tax (EBIT) margin improved by 940 basis points to 32.7%.

Looking at the dividend, Nick Scali’s board decided to increase the final dividend by 11.1% to 25 cents per share. That brought the full year dividend to 65 cents per share – a dividend payout ratio of 63%.

However, the ASX dividend share warned that lockdowns caused written sales orders to fall 27% in July 2021 (which is the start of FY22) compared to July 2020, but up 24% on July 2019. Online growth was 88% for July 2021 compared to July 2020.

Management said that the company’s future growth will be primarily driven by the continuing store rollout and increasing online penetration.

The broker Citi currently rates Nick Scali as a buy. It thinks the company will pay a FY22 dividend of $0.55 per share, equating to a projected grossed-up dividend yield of 6.5%.

Should you invest $1,000 in Nick Scali right now?

Before you consider Nick Scali, you'll want to hear this.

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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 no position in any of the stocks mentioned. 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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