2 ASX shares that could be buys for both growth and dividends

There are a select group of ASX shares that could deliver growth and income.

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Key points

  • These two ASX shares could deliver both income and growth
  • Baby Bunting is benefiting from its expanding scale, selling more private and exclusive products
  • Propel is exposed to ageing demographic tailwinds

These ASX shares could be ideas to consider because of their growth plans and the dividends they are paying to investors.

Many businesses can be put into the ‘growth’ basket or the ‘dividend’ basket. It can be rare to find a business that ticks both boxes.

But, these two could fit the bill and give investors exposure to both:

Baby Bunting Group Ltd (ASX: BBN)

Baby Bunting is a retailer of baby and infant products such as prams, toys, clothes, and furniture.

First, let’s look at the dividend potential. In the recent FY22 half-year result, the ASX share grew the interim dividend by 13.8% to 6.6 cents per share. That brings the trailing grossed-up dividend yield to 5%.

The company has been delivering growth. HY22 sales were up 10% to $239.1 million, with online sales rising by 23.8% (representing 19.7% of total sales). Baby Bunting revealed that its gross profit margin improved 192 basis points to 39.3%, helping statutory net profit after tax (NPAT) rise by 12.2% to $8.1 million.

Baby Bunting is looking to grow profit in a number of ways – growing its store network, expanding in New Zealand, selling more private label and exclusive products (with higher gross margins), being more efficient, and growing its e-commerce capabilities to drive online sales.

The company is going to assess the broader $5.1 billion baby goods market for future growth opportunities, relative to the company’s current $2.5 billion addressable market.

Propel Funeral Partners Ltd (ASX: PFP)

Propel describes itself as the second-largest private provider of death care services in Australia and New Zealand. It has 145 locations, including 32 cremation facilities and nine cemeteries.

The company points to long-term tailwinds for its business, as morbid as that may be. It says that the number of deaths is the most significant driver of revenue in the death care industry.

Death volumes in Australia are expected to rise by 2.9% per annum from 2020 to 2031 and 2% from 2031 to 2050. In New Zealand, death volumes are expected to rise by 2.2% per annum from 2021 to 2032 and 1.8% from 2032 to 2050.

Not only is the number of funerals projected to increase, but the ASX share is also achieving growth of its average revenue per funeral. In the FY22 half-year result, the average revenue per funeral of $5,902 was up 0.5% year on year and up 2.5% on the pre-COVID-19 period.

The ASX share continues to make acquisitions to boost its market share in Australia and New Zealand. In the 2020 calendar year, its market share had grown to around 7%. It is continuing to explore other potential acquisitions.

In January 2022, total funeral volumes were “materially higher” than January 2021. A higher mix of full-service funerals contributed to material growth in average revenue per funeral.

In terms of the bottom line in HY22, Propel’s operating earnings per share (EPS) rose 23.1% to 7.3 cents. The board declared an interim dividend of 6 cents. That means the grossed-up dividend yield is currently 3.6%.

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 recommended Baby Bunting and Propel Funeral Partners Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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