The share market can be a great place to find ASX dividend shares for sources of income. However, most people might only look to some of the most followed names.
Lots of investors go for big ASX bank shares like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), miners such as BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO), and others like Telstra Corporation Ltd (ASX: TLS), Wesfarmers Ltd (ASX: WES) and Woodside Energy Group Ltd (ASX: WDS).
But, I think that there are plenty of other names that could deliver a pleasing amount of dividend income in the coming years, and hopefully deliver better total returns than some of the bigger names I've mentioned.
With that in mind, I'm going to outline three ideas that could be good sources of dividends.
APA Group (ASX: APA)
APA Group is an energy infrastructure business that delivers half of the nation's (natural) gas usage through 15,000km of pipelines that connect sources of supply and markets across mainland Australia. It also owns, or has interests in, gas storage, gas-fired power stations and renewable energy (wind and solar).
The last year has shown how important energy is. I believe the business has an attractive future for cash generation, particularly if it can start transporting some hydrogen in its pipelines.
The ASX dividend share has grown its distribution to investors every year for more than a decade and a half. I think it can keep growing as more pipelines and assets are added to the portfolio, such as the power cable called Basslink that connects Tasmania to the mainland.
Based on an estimated distribution of 55 cents per share in FY23 (growth of 3.8%), this translates into a forward distribution yield of 5%.
Best & Less Group Holdings Ltd (ASX: BST)
This is an ASX retail share that describes itself as a "leading value apparel specialty retailer with an omnichannel sales network comprising 244 physical stores and a fast-growing online platform".
It wants to be the "number one choice for mums and families" that buy baby and kids' value apparel in Australia and New Zealand through its brands Best & Less in Australia and Postie in New Zealand.
In FY22, the business had a dividend payout ratio of around 80%, meaning it still kept 20% of its profit to reinvest back into the business. It can use its profit to grow its store network. At the time of the FY22 result, it had agreements to open 11 new stores during the year, with three additional stores being relocated to larger sites.
The ASX dividend share is expecting the inflationary environment to accelerate the "migration to value", which it provides.
At the end of FY22, it had net cash of $36.7 million, meaning it has plenty of cash on hand to invest for growth (and to keep paying dividends).
In the first eight weeks of FY23, total sales were up 38%. Largely because stores were closed in the first few weeks of FY22. But, it's a boost for FY23 growth statistics nonetheless.
According to Macquarie, Best & Less could pay a grossed-up dividend yield of almost 13%.
VanEck Morningstar Australian Moat Income ETF (ASX: DVDY)
This is an exchange-traded fund (ETF) invested in high dividend yield, "quality" companies based on Morningstar's economic moat rating. These businesses are also screened on Morningstar's 'distance to default' measure.
If it's hard for an investor to pick one particular ASX dividend share, this ETF could be a way to get a diversified investment with 25 holdings.
As of 15 November 2022, these were some of the biggest holdings: AUB Group Ltd (ASX: AUB), Ansell Limited (ASX: ANN), IPH Ltd (ASX: IPH), Wesfarmers Ltd (ASX: WES), Computershare Limited (ASX: CPU), Deterra Royalties Ltd (ASX: DRR), Jumbo Interactive Ltd (ASX: JIN), and Telstra Corporation Ltd (ASX: TLS).
Excluding franking credits, over the year to 30 September 2022, the VanEck Morningstar Australian Moat Income ETF paid an income return of around 5.4%. ETFs just pass through the dividend income that the underlying businesses pay.
