Following multiple rate cuts by the Reserve Bank of Australia (RBA), this is an opportune time to look at ASX dividend shares that offer strong levels of passive income.
Both of the businesses I'm going to highlight in this article have dividend yields materially above what term deposits are offering, and they already have impressive records of increasing their payouts year after year.
While Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) has the longest record for dividend growth, it doesn't have a particularly large dividend yield.
The two ASX dividend shares below do have impressive yields and growth potential.
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Universal Store Holdings Ltd (ASX: UNI)
Universal Store says it owns a portfolio of premium youth fashion brands and wholesale businesses. Its main businesses are Universal Store (trading under the Universal Store and Perfect Stranger) and CTC (trading as THRILLS and Worship brands).
When it released its FY25 results, the company said it had 112 physical stores across Australia. Plus, the financial growth has been excellent.
The FY25 sales increased 15.5% to $333.3 million, with Universal Store sales growth of 15% to $25.5 million, and Perfect Stranger sales growth of 83.1% to $25.5 million. Underlying net profit after tax (NPAT) grew 15.2% to $34.8 million.
Profit growth is a key driver of a rising payout because earnings pay for the dividend. The company increased the annual dividend payment per share by 8.5% to 38.5 cents, which translates into a grossed-up dividend yield of 6.5%, including franking credits.
APA Group (ASX: APA)
APA is one of the largest energy businesses in Australia. It has an enormous gas pipeline network, taking gas from sources of supply to where it's needed. The business carries half of the country's gas usage.
The ASX dividend share also owns gas storage, processing, and energy generation assets.
I believe gas will continue to play an important role in Australia's energy mix and economy for decades to come.
It seems quite likely that renewable energy will play a bigger part in the coming years, so I think it was a good move by APA to invest in both solar farms and wind farms, as well as electricity transmission assets.
By having a diversified energy portfolio, the business can pursue whichever asset next it thinks can generate the strongest returns/profit. That's more appealing than if it had just stuck to gas assets.
The ASX dividend share generates cash flow from its regularly expanding portfolio (of both gas pipelines and non-gas assets), and the distribution has grown alongside the cash flow.
The business is expecting to grow its distribution by another 1 cent per security in FY26 to 58 cents. At the time of writing, APA has a future distribution yield of around 6.5%.
