ASX dividend shares that provide compelling passive income are very appealing to me. There are a few stocks I've invested in multiple times in 2024.
A business doesn't need a huge dividend yield to be an effective income stock. Ideally, it has a solid starting yield, good prospects for earnings growth, and relatively stable payouts (that hopefully can grow over time).
With that in mind, below are two companies I've been focusing my investing dollars on this year.
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Metcash Ltd (ASX: MTS)
Metcash has three different divisions with many recognisable brands.
It has a food division that supplies IGAs around Australia. The company has recently announced the acquisition of Superior Food, a wholesaler that supplies businesses like restaurants, cafes, hotels and hospitals.
Metcash has a liquor division that supplies various independent liquor retailers, including the national brands Cellarbrations, The Bottle-O, IGA Liquor, and Porters Liquor. It also supplies state-based brands such as Thirsty Camel, Big Bargain Bottleshop, and Duncans.
Finally, it owns several hardware brands, including Mitre 10, Home Timber & Hardware and Total Tools, as well as other smaller businesses. It recently announced it was buying one of the country's biggest frame and truss businesses, Alpine Truss.
As you can see, the ASX dividend share is quite diversified in what it does. I'd say it's one of the obvious beneficiaries of a growing Australian population.
I like that it has been making a move towards growing its hardware exposure, with several acquisitions to get to its current portfolio. The Total Tools takeover has proven to be a very useful addition.
Metcash currently has a dividend payout ratio of 70% of underlying net profit after tax (NPAT). According to the estimate on Commsec, the company is projected to pay a grossed-up dividend yield of 7.3% in FY24, 7.7% in FY25 and 8% in FY26.
One of the main things that attracts me to Metcash is the low price/earnings (P/E) ratio considering its quality. According to Commsec, the Metcash share price is valued at just 13x FY25's estimated earnings.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
It's probably not a surprise that I've been buying this ASX dividend share regularly this year; it's one of my favourites for a few different reasons.
I'm a fan of the company's underlying diversification because it's invested in various assets and industries.
Some of the ASX shares it has sizeable positions in include TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), New Hope Corporation Ltd (ASX: NHC), Tuas Ltd (ASX: TUA), Pengana Capital Group Ltd (ASX: PCG), Apex Healthcare, BHP Group Ltd (ASX: BHP) and Macquarie Group Ltd (ASX: MQG).
Some other areas in which it's invested are unlisted assets, including credit/bonds, agriculture, swimming schools, electrical parts, and others.
I like the long-term investment ethos of this ASX dividend share, with a focus on businesses that can typically provide defensive and hopefully growing cash flows. Every year, Soul Patts expands its portfolio by investing in a new business and/or growing an existing business. This is the sort of business that could make progress in the coming years, whatever happens with the local or global company.
The company has grown its annual ordinary dividend every year since 2000, which is an excellent record. It's not guaranteed to continue, but management places high importance on growing the dividend for the coming years. At the current Soul Patts share price, it has a trailing grossed-up dividend yield of around 3.8%.
