Investors in their 60s nearing retirement may want to consider generating higher levels of dividends from their ASX share portfolio.
Investing in a company solely for its ultra-high dividend yield is not the best strategy, in my view. Ideally, there would also be some capital growth over time as well.
Dividends aren't guaranteed, but if the business delivers underlying earnings growth, investors have a better chance of maintaining and growing those payments.
I believe the two ASX shares below are options that can achieve both a good yield and longer-term earnings growth.
Metcash Ltd (ASX: MTS)
Metcash has three divisions. Its food division is best known as the supplier to more than 1,600 supermarket stores, predominantly IGA and Foodland stores.
The liquor division supplies around 90% of independent liquor stores in Australia. These include national brands like IGA Liquor, Bottle-O, Cellarbrations and Porters Liquor.
Metcash's hardware segment is one of the largest businesses in the country. It owns brands like Mitre 10, Home Timber & Hardware, and Total Tools. It also supports independent operators under the small-format convenience banners Thrifty-Link Hardware and True Value Hardware.
The company also recently announced the acquisition of one of the largest frame and truss businesses in Australia and a deal to buy Superior Food, a large supplier to cafes, restaurants, hotels, and other businesses.
It is committed to a dividend payout ratio of 70% of underlying net profit after tax (NPAT), which I think is generous and rewarding.
The company recently reported its FY24 result, which included an annual dividend per share of 19.5 cents, translating into a grossed-up dividend yield of around 7.5%.
The estimate on Commsec suggests the annual payout from the ASX share could rise to 21 cents per share in FY26, which would be a grossed-up dividend yield of 8.1%.
Centuria Industrial REIT (ASX: CIP)
This is a real estate investment trust (REIT) that owns a portfolio of industrial properties across Australia.
In the third quarter of FY24, the business reported seeing re-leasing spreads of 50% in FY24 to date. That means the ASX share is generating 50% more rental income on the same properties on new leases compared to the old leases. That's a strong increase and shows the strong demand and increased value of logistics properties.
Ongoing double-digit rental growth could fund higher distributions in future years.
At the time of that third-quarter update, the ASX REIT share's manager Grant had this to say:
CIP continued to benefit from strong sector tailwinds within urban infill industrial markets. CIP's strategic exposure to land-constrained 'last mile' locations continued to achieve robust rental growth, and has generated strong re-leasing spreads.
We believe the continued adoption of ecommerce and onshoring supply chains will maintain demand for infill industrial markets.
Nichols said CIP remained the only "domestically focused, pure-play industrial REIT listed on the ASX, providing investors with a portfolio of high-quality real estate assets across Australia's major urban infill industrial markets". He said:
Looking ahead, we believe CIP is well positioned to benefit from the industrial sector tailwinds, underpinned by Australia's burgeoning population, which is forecast to increase by more than 975,000 people between 2023 and 2025. This population expansion alone is expected to increase Australian industrial demand by c.4.5million sqm.
The company's guided distribution of 16 cents per unit works out to be a distribution yield of 5.1%.
