ASX income shares can be a great option for investors who are looking for passive income.
Businesses can provide a number of benefits for investors – they can grow profit, deliver capital growth, and pay a good dividend yield.
If I'm looking to buy a great ASX income share, I'm looking for businesses that can generate solid income today and much larger payments in the future.
With that in mind, I think the below two businesses are appealing stocks.
Centuria Industrial REIT (ASX: CIP)
This looks to me like one of the most appealing real estate investment trusts (REIT) to consider right now.
It describes itself as Australia's largest domestic pure-play industrial REIT, which has a portfolio of high-quality industrial assets in key metropolitan locations throughout Australia.
The business is benefiting from a number of tailwinds, including increasing e-commerce activity, onshoring of supply chains following COVID impacts, and Australia's rising population.
This growing demand for industrial property is translating into strong rental outcomes for the ASX income share. During the first quarter of FY25, it saw positive re-leasing spreads of 54%. That means the new rental contracts are generating 54% more rent than the old contract.
This rental growth can help deliver higher distributions in the coming years despite the headwinds of higher interest rates.
The ASX income share is expecting to pay a distribution per unit of 16.3 cents in FY25, which translates into a distribution yield of 5.4%.
Step One Clothing Ltd (ASX: STP)
This company describes itself as a leading direct-to-consumer online retailer of underwear, which Step One says is high quality, organically grown and certified, sustainable, and ethically manufactured for a broad range of body types.
Step One seems to be doing something which other Australian companies have struggled to – growing overseas. I'm not expecting Step One to become a $10 billion company, but its growth rate is impressive.
In the FY24 result, UK revenue grew by 33.2% to $27.1 million, and US revenue increased 261% to $6.5 million. Australia is still the key market, with $50.9 million in revenue in FY24 (up 18% year over year), but other countries could become more important. I'm expecting Step One to expand to other countries in the future, such as Canada.
I'm also pleased to see operating leverage being demonstrated, with rising profit margins. FY24 net profit rose 43.9% to $12.4 million. While net profit may not grow every year, I do think it'll be much higher in five years and ten years.
In FY24, the business paid a grossed-up (including franking credits) dividend yield of 6.5%.
