2 ASX dividend shares that could be buys with yields above 4%

Metcash and Nick Scali are two ASX shares with sizeable yields.

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The two ASX dividend shares in this article both have dividend yields of more than 4%.

These are businesses that have yields which are quite a bit more than what someone could get from the bank.

FY21 was a strong year for the below two businesses:

Metcash Limited (ASX: MTS)

Metcash is a company that is across three different industries: food, hardware and liquor. It supplies IGAs, Cellarbrations, The Bottle-O, IGA Liquor, Duncans and Thirsty Camel around the country. It also owns the hardware businesses Mitre 10 and Home Timber & Hardware, as well as owning most of the Total Tools business.

The ASX dividend share revealed in FY21 that revenue increased 9.9% to $14.3 billion. Group earnings before interest and tax (EBIT) rose 19.9% to $401.4 million. Underlying profit after tax grew 27.1% to $252.7 million. It saw strong sales growth in all pillars driven by a shift in consumer behaviour and success of its MFuture initiatives, according to management.

In regards to the dividends, the board decided to increase the target payout ratio from 60% to 70%. The board declared a final dividend of 9.5 cents per share, bringing the full year dividend to 17.5 cents – an increase of 40%. It also announced a share buy-back of up to $175 million. The business also recently increased its ownership of Total Tools from 70% to 85% for $59.4 million.

It’s currently rated as a buy by the broker UBS. Based on the projection of a full year dividend of $0.18 per share (an increase on FY21), that represents a grossed-up dividend yield of 6.4%.

Nick Scali Limited (ASX: NCK)

Nick Scali is a leading furniture retailer. The ASX dividend share has a network of showrooms in Australia and New Zealand.

Not only did the business perform strongly in FY21, but it may also use some of its earned cash to make acquisitions. In July 2021, Nick Scali confirmed that it was talking to Greenlit Brands about potentially acquiring the Plush Sofas business.

FY21 saw sales grow 42.1% to $373 million, whilst underlying net profit after tax (NPAT) doubled to $84.2 million. This also saw earnings per share (EPS) double to $1.04. The full year dividend was grown by 37% to $0.65 per share.

The online segment reported a few different things. Nick Scali online written sales orders were $18.3 million in FY21, up from $3 million in FY20. The online written sales orders of $5.5 million in the fourth quarter of FY21 was an increase of 84% year on year. Online saw full year revenue of $15.3 million, with an earnings before interest and tax (EBIT) contribution of $8.8 million.

Nick Scali said it was going to launch a lounge visualisation tool in July 2021. It also said that e-commerce was going to launch in August 2021 across both Australia and New Zealand.

It’s currently rated as a buy by the brokers at Macquarie Group Ltd (ASX: MQG). For FY22, Macquarie thinks Nick Scali is valued at 16x forward earnings with a projected grossed-up dividend yield of 7.6%.

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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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