Some ASX companies have the potential to increase their dividends next year, and over the long-term.
For me, one of the most important dividend metrics is the dividend payout ratio. That tells us how much of that year's profit the business is paying out.
For example, if a business makes $100 million in profit and pays out $70 million of it to shareholders, the dividend payout ratio is 70%. Dividends aren't free money, they do reduce the business' cash balance.
The lower the payout ratio, the more scope there is for the business to increase the dividend next time – it doesn't need to necessarily grow profit the next year to afford a higher payout. Or, if profit falls, there's more scope for the business to maintain its dividend payout.
For example, if the business that made $100 million in profit saw its profit drop 10% to $90 million in a recession, it could still afford an increase of the payout to $75 million (resulting in a dividend payout ratio of 83%).
Below are two ASX shares with large yields today which I think can grow their dividends in FY25 and FY26.
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Shaver Shop Group Ltd (ASX: SSG)
Shaver Shop is one of the largest retailers of shaving products in Australia, with 123 stores across Australia and New Zealand.
In the FY24 first-half result, the retail saw total sales drop 3.7% to $127 million, while net profit after tax (NPAT) declined 8.6% to $12.5 million. This translated into 9.7 cents of earnings per share (EPS).
The business decided to pay an interim dividend of 4.7 cents per share.
The estimate on Commsec suggests Shaver Shop could generate an EPS of 11.3 cents for FY24. If it were to pay the same dividend as FY23 (10.2 cents per share), it would be a grossed-up dividend yield of 12.8% and a dividend payout ratio of 90%. That's quite high, but there's still a good gap between profit and the payout.
The business has grown its dividend each year since 2017, when it first started paying money to shareholders. The forecast on Commsec suggests Shaver Shop's profit could grow in FY25 and FY26.
I think there's a good chance the profit and dividend can grow in FY25 and FY26 if/when household finances (and confidence) improve. The company's ongoing store rollout can also help grow earnings.
Nick Scali Limited (ASX: NCK)
Nick Scali is a retailer of furniture through its Nick Scali and Plush brands.
It grew its dividend every year between FY13 and FY23, which is an impressive record considering it's a retailer of a somewhat discretionary type of item.
In the FY24 first half, its revenue dropped 20% to $226.6 million and NPAT fell 29%. Ouch! However, the prior year was boosted because of increased deliveries as the order bank reduced with lead times returning to pre-COVID levels.
Nick Scali reported that its group written sales orders for HY24 were $212.7 million, an increase of 1.1% year over year. So, underlying sales slightly increased year over year.
It generated an EPS of 53.1 cents and paid a dividend per share of 35 cents. That translates into a dividend payout ratio of 66%. The forecast on Commsec suggests it could pay 65 cents per share in FY24, which would be a grossed-up yield of 6.4%. It could then grow profit and dividends in FY25 and FY26, resulting in a possible grossed-up yield of 7.3%.
