An ASX dividend giant I'd buy over BHP stock

The dividends from this business have grown enormously.

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I think Premier Investments Limited (ASX: PMV) is an ASX dividend giant that could be a better choice to buy than BHP Group Ltd (ASX: BHP) stock.

There are many different ASX blue chips to choose from in the S&P/ASX 200 Index (ASX: XJO). Examples include ASX bank shares like Commonwealth Bank of Australia (ASX: CBA), miners such as BHP and retailers like Harvey Norman Holdings Limited (ASX: HVN). Many of them pay large dividend yields, but there are a few I'd put above the rest.

Premier Investments is the name behind a number of well-known retail brands, including Just Jeans, Peter Alexander, Portmans, Dotti, Smiggle, Jay Jays and JacquiE. It's also a substantial shareholder of Breville Group Ltd (ASX: BRG) and Myer Holdings Ltd (ASX: MYR) shares.

Why I'd buy Premier Investments shares

I like to look at ASX retail shares when they're going through uncertain times. That's when their share prices are impacted more than defensive sectors – discretionary demand can be cyclical in line with the economy. So now could be a good time to look at an ASX dividend giant like this.

The Premier Investments share price is down more than 20% from its peak in November 2021, but its profitability and dividend have continued to be impressive. In FY23, the underlying net profit rose 6.4% to $278.6 million, and the annual ordinary dividend was increased by 14% to $1.14 per share. Compared to FY21, the dividend was 42.5% higher.

Including the special dividends, the FY23 annual dividend was $1.30 per share from the ASX dividend giant.

The company continues to open new stores, which is increasing its scale and geographic reach. For example, Peter Alexander opened six new stores in FY23, and plans to open more or upsize to larger format stores in some locations. The specialty brand is also looking at offshore expansion opportunities.

Smiggle is also growing with store expansions, including opening freestanding stores in UAE, Qatar, Kuwait, Oman and Bahrain.

In the first half of FY24, Premier projects retail earnings before interest and tax (EBIT) (pre-AASB 16) to be around $200 million.

Over the past decade, the annual ordinary dividend has grown from 38 cents per share to $1.14 per share, an increase of 200%. I'm not expecting the next 10 years to be as good,

According to the current estimate on Commsec, Premier Investments could pay an annual dividend per share of $1.23 in FY25, which would be a grossed-up dividend yield of 7%.

Why I'd wait on BHP stock

BHP is known for paying a relatively large dividend yield, but that dividend can bounce around as commodity prices and profit change.

In recent weeks, the iron ore price has soared to above US$130 per tonne. This is good news for existing shareholders because the monthly profit is higher, and the BHP share price is up.

However, I strongly believe that the best time to invest in ASX iron ore shares is when pessimism is rife.

I don't know if, or when, the iron ore price is going to head back under US$100 per tonne, but that is the sort of trigger I'd use to start thinking about the ASX dividend giants of BHP, Rio Tinto Ltd (ASX: RIO) and Fortescue Metals Group Ltd (ASX: FMG), rather than right now.

Motley Fool contributor Tristan Harrison has positions in Fortescue. 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 Harvey Norman. The Motley Fool Australia has recommended Premier Investments. 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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