Owning ASX dividend shares can be a very rewarding experience – receiving cash every year for very little effort sounds like a good life.
A big dividend yield alone is not enough; in my opinion, there should also be a good chance of long-term dividend growth. That's because it's useful to protect against inflation so the value of the dividend dollars isn't being eroded. Plus, if the dividend is growing then it's obviously not being cut. Dividend stability is usually an important factor to me.
Dividend growth is not guaranteed (in FY24 or any year), but over the long term, I think these two ASX dividend shares are good options for big yields.
Universal Store Holdings Ltd (ASX: UNI)
This retailing business owns a number of premium youth fashion brands, including Universal Store, THRILLS, Worship and Perfect Stranger. It currently operates 100 physical stores across Australia.
The business has been growing Perfect Stranger as a separate business rather than selling through Universal Store locations. In the FY24 first-half result, Perfect Stranger sales soared 59.7% to $6.6 million. In the HY24 period, the ASX share opened six new stores, with three new Perfect Stranger stores and two Universal Stores.
Universal Store has done a good job of growing its dividend every year since it first started paying one in 2021.
I think the ASX dividend share can keep growing the profit and dividend if its existing stores collectively deliver rising sales over time while opening new stores in good locations.
According to the estimate on Commsec, the business is projected to pay a grossed-up dividend yield of 6.6% in FY24 and 8.25% in FY26.
Metcash Ltd (ASX: MTS)
This business supplies a large number of independent stores around Australia including IGA, Foodland, Thirsty Camel, Cellarbrations, The Bottle-O, IGA Liquor, and Porters Liquor. It also owns a number of hardware businesses, including Mitre 10, Home Timber & Hardware, Total Tools and more.
Everyone needs to eat food, and lots of people drink liquor, so in my view, the business has a lot of defensive earnings built into it.
Australia's population keeps growing which is a useful tailwind for the hardware earnings – it means more dwellings are needed, plus more potential hardware work in the future from DIY projects and renovations.
The ASX dividend share has used acquisitions to diversify and boost its earnings, with Total Tools, Superior Food (food distribution to businesses like restaurants), Bianco Construction Supplies and Alpine Truss being some of the latest deals.
It has a dividend payout ratio of 70% of underlying net profit after tax, which I think is a good balance between rewarding shareholders and retaining some profit to invest in the business.
According to Commsec, it could pay a grossed-up dividend yield of 7.4% in FY24 and 8.2% in FY26.
