3 ASX dividend shares proving they can handle inflation

Inflation is helping boost the revenue of these businesses.

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Key points

  • APA is a gas infrastructure company where most of its revenue is linked to inflation
  • Lovisa is a jewellery business that has increased prices to account for inflation
  • Propel is a funeral business that saw a 6% increase in funeral prices in July 2022

Inflation is having a rough impact on different parts of the economy. Some valuations have plummeted and many companies are warning that inflation will affect their cost of doing business. However, there are some ASX dividend shares that are managing to handle it well.

Some businesses have revenue linked to inflation, so these names could be ones to consider.

Despite recent share price movements, the following companies could be opportunities.

APA Group (ASX: APA)

APA is one of the largest infrastructure businesses in Australia. It owns a network of gas pipelines around the country, transporting half of the nation's natural gas usage. APA also owns various gas-related assets (such as energy generation and storage), as well as renewable energy assets.

Interestingly, it is working on a way for hydrogen to be transported in its pipelines. This could be an effective way to future-proof the ASX dividend share and extend the life of its assets.

So how does inflation come into the picture? A "significant portion" of its revenue is linked to inflation – a large majority of it. The company benefits because its contracts have built-in revenue growth in line with inflation. As an example, the Wallumbilla Gas Pipeline in Queensland saw a 7.5% increase in contracted revenue with its annual reset in January 2022.

In FY23, the distribution per security is expected to grow by 4% to 55 cents. This translates into a forward grossed-up dividend yield of 5.6%.

Lovisa Holdings Ltd (ASX: LOV)

Lovisa is a globally-growing ASX retail share that sells affordable jewellery focused on younger shoppers.

FY22 saw strong performance. On a comparable 52-week basis, revenue went up 55.6% and net profit after tax (NPAT) grew 110.3%. Lovisa also added 85 net new stores to end the financial year with 629 shopfronts.

The company said that in the third quarter of FY22, it implemented price increases that helped deliver sales growth with "minimal impact" experienced in volumes.

In FY23, the first seven weeks saw total sales growth of 66.1% on the same period in FY22. The ASX dividend share had opened another 22 stores in the new financial year to date.

In FY22, Lovisa paid a dividend per share of 74 cents. That means it has a trailing grossed-up dividend yield of 3.5%.

The Lovisa share price is almost 20% higher than when it started 2022.

Propel Funeral Partners Ltd (ASX: PFP)

Propel is one of the largest funeral providers in Australia and New Zealand.

The business saw a recovery from COVID-19 impacts in FY22. Excluding one-off items, Propel said that its FY22 revenue increased 20.6% to $145.2 million and operating earnings per share (EPS) increased by 31.1% to 15 cents.

In the first six weeks of FY23, total and comparable funeral volumes were "materially higher" than the prior corresponding period. In the month of July 2022, the average revenue per funeral was around 6% higher than FY22.

Over the long term, it's expecting volume growth because of "favourable demographics" in Australia and New Zealand.

Commsec estimates suggest that the ASX dividend share is going to pay an annual dividend of 12.4 cents per share in FY23. That would be a grossed-up dividend yield of 3.6%.

The Propel share price has gone up 10% in 2022, showing its resilience.

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 positions in and has recommended APA Group. The Motley Fool Australia has recommended Lovisa Holdings Ltd 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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