I think there are some really attractive ASX dividend shares that are worth owning for the long term.
I'm not talking about big ASX banks like Commonwealth Bank of Australia (ASX: CBA). I am going to cover two businesses that are smaller but I believe have plenty of growth potential.
Companies that have plans to develop their businesses and also keep paying dividends to investors may be attractive.
If I were hunting for income, then these two ASX dividend shares would be near the top of my watchlist:
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Metcash Limited (ASX: MTS)
Metcash is a diversified business – it has a food division, a liquor segment, and a hardware segment.
The food division supplies IGAs across Australia, as well as other non-major supermarkets The liquor division supplies national brands including Cellarbrations, The Bottle-O, IGA Liquor, Duncans, Thirsty Camel, Big Bargain, and Porters. In the hardware segment, the company is the owner of Mitre 10, Home Timber & Hardware, and Total Tools.
I like that the ASX dividend share has committed to pay to shareholders around 70% of underlying net profit after tax (NPAT). This enables shareholders to receive good payouts as the company invests for growth in areas like business efficiencies and online retailing.
I think the hardware division has the ability to grow earnings over the long term, with the potential to become the clear number two behind Wesfarmers Ltd (ASX: WES)'s Bunnings. This could be where a majority of Metcash's growth is generated with a rise in trade and DIY sales for the segment, as well as growth opportunities for Total Tools.
According to CMC, the estimated grossed-up dividend yield for Metcash in FY22 is 7.2%.
Baby Bunting Group Ltd (ASX: BBN)
Baby Bunting is a large ASX retail share that sells a wide variety of baby and infant products including car seats, prams, feeding products, furniture, toys, and bedding.
While this company may not have a reputation as an ASX dividend share, it is building one, in my opinion. It has grown its dividend each year since 2019, while Baby Bunting's trailing grossed-up dividend yield is 5.2%.
The company is demonstrating attributes that could allow its dividend to keep growing.
The FY22 half-year result showed total sales growth of 10%, a growing proportion of sales being online (almost 25% in HY22), a growing gross profit margin (HY22 showed a 192 basis point increase to 39.3%), and achieving NPAT growth. Statutory NPAT rose 12.2% in HY22. This funded a 13.8% increase in the interim dividend.
I think the business still has plenty of growth potential with the plan to grow its Australian store network from 64 to more than 100. It's also planning to grow a store network in New Zealand.
As Baby Bunting grows its scale and net profit, the company could have greater cash flow to fund higher dividend payments.
