I think the best ASX dividend shares should be able to offer a strong mix of growth and dividends. A portfolio of winning stocks could beat the market while also providing solid passive income.
A business needs to be making a profit to pay a dividend, which is normally a good sign. Companies that are growing earnings can be particularly appealing because this can fund higher payouts and also cause investors to value the business higher over time.
Not every business is destined to grow earnings, so it's worthwhile just focusing on the ones that seem capable of delivering that growth. That's why the two ASX dividend shares below are interesting propositions to me.
Collins Foods Ltd (ASX: CKF)
Collins Foods is a large franchisee of KFC outlets in Australia, the Netherlands, and Germany. As the chart below shows, the Collins Foods share price is down 25% from the start of the year, meaning its valuation is much cheaper than it was several months ago.
When a share price drops, it increases the potential dividend yield on offer.
Collins Foods has increased its annual dividend payout every year since 2014, so it has delivered a decade of consecutive annual dividend growth, which I think is an impressive record considering everything that has happened (including a global pandemic).
A key factor for the company's long-term growth has been its store rollout. It's steadily opening new stores and acquiring existing stores to boost its scale further.
The last two dividends declared by Collins Foods amount to 28 cents per share, which is a grossed-up dividend yield of 4.4%.
According to Commsec estimates, the ASX dividend share could pay a grossed-up dividend yield of 5.9% in FY26 after seeing its earnings per share (EPS) increase to 65.8 cents. With inflation starting to settle, the company's cost growth is slowing – the future is looking bright for the business as it continues to expand in Australia and the Netherlands.
Universal Store Holdings Ltd (ASX: UNI)
This company owns a portfolio of what it calls premium youth fashion brands and omnichannel retail and wholesale businesses. Its 'on-trend' products are targeted at 16 to 35-year-old fashion-focused customers.
Its main businesses are Universal Store and CTC (trading as THRILLS and Worship brands). Universal Store also owns Perfect Stranger, and it's rolling out this brand as a standalone retail concept, whereas before, it was purely sold in Universal Store.
The ASX dividend share has 102 physical stores in Australia and all of its online channels. One of the company's main growth strategies is to open stores across its different brands.
In the second half of FY24, the growth of Perfect Stranger was particularly good – its like-for-like sales increased by 11.5%, while Universal Store's total sales grew by 9.7% in the second half of HY24.
Despite the strong performance of the Universal Store share price over the past year, it's still around 30% lower than where it was in November 2021, as shown on the chart below.
The business was listed in November 2020, and it has grown its annual dividend every year since the first half of 2021 when it started paying passive income.
It currently has a grossed-up dividend yield of around 6%, and Commsec forecasts suggest the company could pay a grossed-up dividend yield of more than 8%. The ASX dividend share is valued at under 12x FY26's estimated earnings.
