In this period of uncertainty, ASX dividend shares that provide a higher level of passive income could be exactly what investors are looking for.
Interest rates in Australia remain quite high, so income-seekers may want to find investments that can provide a higher level of yield than a term deposit.
Unlike a term deposit, ASX dividend shares can deliver growth, so I'm going to discuss two stocks below that provide a mixture of good dividends, income growth, and longer-term capital growth.
Universal Store Holdings Ltd (ASX: UNI)
Universal Store is an impressive ASX retail share, in my view, with a number of youth fashion brands. Its main business is its Universal Store shop network. It also has CTC (which trades as THRILLS and Worship brands) and Perfect Stranger. The business has more than 100 stores across Australia.
In my opinion, this business already has an impressive dividend record. It started paying a dividend in 2021 and has paid a dividend every year since then. Some other ASX retail shares have cut their dividends in the last couple of years amid the inflation and elevated cost of living.
The ASX dividend share paid an annual dividend per share of 35.5 cents in FY24, which translates into a grossed-up dividend yield of 6.5%, including franking credits.
Universal Store's recent FY25 trading update showed very promising numbers to help dividend growth in the 2025 financial year. The company announced its FY25 year-to-date direct-to-customer sales were up 19.3% year over year.
Universal Store's total sales were up 15.5%, Perfect Stranger's total sales were up 111.1%, and CTC's total sales grew 7.4%.
The company said its store rollout is on track to open nine to 15 new stores in FY25, with seven expected to open by Christmas.
It said its gross margin was in line with the second half of FY24. However, its cost of doing business as a percentage of sales was approximately 1% above the prior year because of inflation pressures and investments in its team's capability.
According to the forecasts on Commsec, Universal Store is valued at 16x FY25's estimated earnings.
MFF Capital Investments Ltd (ASX: MFF)
I plan to regularly invest in MFF Capital shares in the coming years because it gives Aussies access to impressive businesses like Amazon, Alphabet, Mastercard, Visa, Bank of America, American Express, Meta Platforms, Home Depot, and Microsoft.
Impressively, thanks to the quality-focused portfolio, MFF shares have delivered average total shareholder returns (TSR) per annum of 12.1%, which doesn't include the benefits of franking credits.
In terms of passive income, MFF has grown its annual ordinary dividend every year since 2018, which is a solid and growing record.
One reason I like this investment is that we can buy the ASX dividend shares at a discount to their underlying value, called the net tangible assets (NTA). In other words, we can buy $1 of shares for 90 cents (if the NTA discount were 10%).
As of 29 November 2024, its pre-tax NTA was $4.85. At the current MFF share price, it's trading at a 10% discount to that value, which I think is an appealing discount.
In FY25, it's expecting to pay a grossed-up dividend yield of 5.25%, including franking credits.
