Some ASX shares are primed to deliver bigger dividend payouts to investors because their underlying revenue and profitability are increasing.
Dividend growth isn't everything, and it's not guaranteed, but the stocks that do grow payouts are compelling as a protection against inflation. Businesses with a good dividend yield can provide a satisfactory return to their shareholders.
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GQG Partners Inc (ASX: GQG)
GQG is a large fund manager on the ASX, with a market capitalisation of almost $7 billion.
The business is based in the United States and offers four main investment strategies: US shares, global shares, international shares and emerging market shares.
The ASX share's payout is linked to how much profit it makes. It has committed to a dividend payout ratio of 90% of distributable earnings. GQG makes nearly all of its revenue from management fees rather than performance fees (though it does regularly and convincingly outperform its benchmark over the longer-term).
Therefore, the growth of funds under management (FUM) is essential for the ASX share. Success in growing FUM should hopefully result in dividend hikes.
In the 2023 financial year – which follows the calendar year ending on 31 December – GQG reported its average FUM for the year was US$101.9 billion. This is what the distributable earnings of US$297.9 million were generated from. The closing FUM for 2023 was US$120.6 billion (18% higher than the average of 2023).
Since then, the FUM has grown to US$143.4 billion at 31 March 2024, which is 40% higher than the average FUM of 2023.
The estimate on Commsec suggests that GQG shares could pay a dividend yield of 8% in 2024 and 9% in 2025.
APA Group (ASX: APA)
This energy infrastructure business has grown its distribution every year for the past 20 years, which is one of the best growth records on the ASX.
APA owns a national gas pipeline that transports half of the nation's usage. It also owns electricity transmission assets, renewable energy generation and various gas assets (processing, storage and energy generation).
The ASX share pays for its distribution increases via increased cash flow from its portfolio of assets. A large majority of its revenue is linked to inflation, so the revenue is benefiting from the current inflationary environment.
When the business completes a new pipeline project, new revenue is unlocked. Three examples of its new projects are the Northern Goldfields Interconnect pipeline, the East Coast grid expansion, and the Kurri Kurri lateral pipeline.
The ASX share has guided an increased distribution of 56 cents per security in FY24, which is a distribution yield of 6.7%. The Commsec projection suggests a distribution yield of 6.9% in FY25.
