ASX dividend shares with big dividend yields could be an attractive source of returns for investors looking for a mixture of possible capital growth and a stream of growing payments.
One of the most attractive things, in my book, about ASX companies is that they can generate profit, pay out a proportion of that to investors and invest the rest for more long-term growth.
A (high) dividend payout ratio of 90% still means that a business is retaining 10% of its profit to invest for growth next year and beyond. Don't forget that earnings growth can help push the share price of those businesses higher.
GQG Partners Inc (ASX: GQG)
GQG is a US-based fund manager that is committed to paying out 90% of its distributable earnings each year as a dividend. That means that it naturally has a fairly high dividend yield, particularly thanks to its low price/earnings (P/E) ratio.
In the first half of FY23, being the six months to June 2023, we saw GQG achieve 4.7% year-over-year growth of its average funds under management (FUM) to US$95.2 billion and 2.5% growth of its distributable earnings to US$136.6 million.
With the company finishing the HY23 period with closing FUM of US$104.1 billion, there's definitely good potential for earnings and the dividend to keep increasing over the next 12 months. GQG's main underlying funds have delivered long-term outperformance of their respective benchmarks.
According to Commsec, the business could be paying a dividend yield of 10% in FY24.
Metcash Ltd (ASX: MTS)
Metcash is one of my favourite defensive ASX dividend shares. It's quite a diverse business, with it being the main supplier of IGA supermarkets around Australia. The company also supplies a wide number of independent liquor retailers, including Cellarbrations, The Bottle-O, IGA Liquor, Porters Liquor, Thirsty Camel, Big Bargain Bottleshop and Duncans.
I'd suggest that supermarket food and liquor could be two of the more resilient retail categories over the next year, even if there's a downturn. The locked-down periods of COVID-19 showed that people are likely to still spend at those places, even if they're not spending as much elsewhere.
The third pillar to the Metcash business is hardware – it owns a number of brands, including Home Timber & Hardware, Mitre 10 and Total Tools. Metcash notes that it also supports independent operators under the small format convenience brands of Thrifty-Link Hardware and True Value Hardware, as well as a number of unbannered independent operators. It also owns Hardings and Design 10.
The ASX dividend share has committed to pay out 70% of its underlying net profit after tax (NPAT) as a dividend. The forecast on Commsec currently suggests that the business could pay a grossed-up dividend yield of 8% in FY24.
APA Group (ASX: APA)
APA is one of the largest infrastructure businesses on the ASX – it has a large and growing national gas pipeline, which transports half of Australia's national gas usage. The business is also investing in the energy transition, including a large takeover play for a renewable energy business in the Pilbara region.
The company may not have quite as high of a dividend yield as the first two ASX dividend shares above, but APA does have an impressive distribution growth streak. It has grown its payout per security every year since 2004. That's one of the best growth streaks on the ASX.
Energy will continue to be an important part of Australia's economy for many years to come, perhaps forever. I like the way that APA is investing in energy transition assets, and it's also exploring the possibility of using its pipelines to transport hydrogen – this could lengthen the useful life of its pipelines for many more years.
APA has provided guidance that it's going to pay an annual distribution per security of 56 cents, which translates into a forward distribution yield of 6.4%.
