Some ASX dividend shares have dividend yields significantly higher than the interest we can earn from a term deposit.
However, dividends are not guaranteed, so dividend yields are not always reliable. As such, we need to watch out for stocks that are yield traps which could result in dividend cuts.
A high yield can require a combination of a generous dividend payout ratio and a reasonable valuation.
There are a few ASX companies that I believe can grow their payouts for the foreseeable future. I think the two stocks below can keep growing their payouts and also provide a high yield.
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APA Group (ASX: APA)
APA Group owns various energy assets, including a national gas pipeline that transports half of Australia's gas usage. It also has gas processing, storage, and energy generation assets, as well as electricity transmission, wind farms, and solar farms.
I think this business will be an essential part of the nation's energy picture for decades to come, with gas potentially playing an important role until renewable energy or another form of energy can generate what Australia needs.
In terms of the payouts, the business has grown its distribution every year since 2004. Of course, distribution growth isn't guaranteed, but APA continues to invest in new energy assets and expansion efforts to help its cash flow grow further. For example, within the past two years, APA acquired Basslink, the sole electricity interconnector between Tasmania and Victoria.
The ASX dividend share is expected to grow its annual distribution by 1.8% in FY25 to 57 cents, which translates into a distribution yield of 7.9%.
Telstra Group Ltd (ASX: TLS)
Telstra is the leading telco share on the ASX boasting the biggest population coverage with its network and the strongest spectrum assets.
The company is using its scale advantage by investing heavily in its 5G network, which helps the business stay ahead of the competition while attracting large numbers of new users. In FY24, Telstra added hundreds of thousands of new subscribers and saw its mobile average revenue per user (ARPU) rise, largely thanks to price increases.
Telstra has managed the transition to the NBN, and now it's growing its profit margins again. Profit growth is a key ingredient for dividend growth,
The board wants to increase the payout to shareholders if profitability, balance sheet, and franking credits allow. Telstra has grown its annual dividend for shareholders in the last few years, and thanks to the latest mobile price increase, I think another increase could occur in FY25. Telstra is banking on its customer base wanting to stick with the leading telco's network.
The company's FY24 dividend payout translates into a grossed-up dividend yield of 6.6%. The FY25 yield could be even more appealing.
