2 ASX dividend shares offering over 5% yield

Grab a cuppa, get comfy, and let's dive into the exciting world of dividends Down Under.

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In the world of investing, dividends are like the steady heartbeat of a healthy portfolio. They provide a regular income stream, offering a cushion against market volatility.

Are you seeking some reliable ASX dividend shares with impressive yields? Read on to explore two ASX shares currently offering dividend yields of over 5%.

Metcash Ltd (ASX: MTS)

Where do you shop for groceries these days? Surely, Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) are the main ones that come to mind.

In addition to these two retail giants, IGA Supermarkets are also doing well, with over 1,400 stores nationwide.

Furthermore, IGA owner Metcash shares are trading cheaper than its bigger peers. Using earnings estimates by S&P Capital IQ:

  • Metcash shares are trading at 13x FY25 estimated earnings
  • Woolworths shares are trading at 23x FY25 estimated earnings
  • Coles shares are trading at 20x FY25 estimated earnings

Based on actual dividends paid over the past 12 months, Metcash offers a higher dividend yield than its peers.

  • Metcash offers a fully franked dividend yield of 5.9%
  • Woolworth offers a fully franked dividend yield of 3.2%
  • Coles offers a fully franked dividend yield of 3.9%

Its 1H FY24 results were mixed. While revenue, net of charge-through sales, grew by 1.3% from a year ago to $7.8 billion, its underlying operating profit decreased 3.4% to $246.5 million. Underlying net profit after tax was down 10.9% to $142.5 million.

With that said, in the same report, Metcash provided a positive trading update for the second half. For the first four weeks of 2H FY24, food sales, excluding volatile Tabacco products, increased by 4.8%, while hardware and liquor sales were up 2.4% and 1.5%, respectively.

The Metcash share price closed Tuesday at $3.72 after falling 4% over the past month.

HomeCo Daily Needs REIT (ASX: HDN)

HomeCo is a property trust focused on owning and managing a portfolio of properties that cater to everyday consumer needs. The real estate investment trust (REIT) currently manages about 1,200 tenants across over 50 properties, serving major brands like Woolworths, Coles, Bunnings, KFC, and more.

In 1H FY24, the REIT boasted robust leasing fundamentals, with over 99% occupancy and rent collection. Funds from operations (FFO) increased by 1% from a year ago to $89.4 million, or 4.3 cents per share (cps) on a unit basis. The trust distributes nearly 98% of its FFO, or 4.2 cps for 1H FY24, in accordance with the REIT's distribution requirement.

The annual distribution is 8.4 cps, yielding 6.8% at the current security price of $1.22. Although there's no franking credit attached to it, this is a pretty generous yield.

The trust appears undervalued based on its net asset value. Its net assets were valued at $3.1 billion as of 31 December 2023. This is $1.44 per unit of security, meaning its current security price is at a 16% discount to its asset value.

Morgans also recently recommended HomeCo Daily Needs REIT to buy due to the resilience of its cash flows and its exposure to accelerating click and collect trends.

The HomeCo Daily Needs REIT unit price closed at $1.22 on Monday after falling 3.17% over the past month.

Motley Fool contributor Kate Lee has no position in any of the stocks mentioned. 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 Coles Group. The Motley Fool Australia has recommended HomeCo Daily Needs REIT and Metcash. 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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