Metcash Limited (ASX: MTS) shareholders will receive a larger dividend from the retail company following an improved profit result from its hardware division.

In an announcement to the ASX this morning, Metcash released its 2018 full year results showing a 2.4% increase in sales and a loss of $149.5 million. However, excluding impairment charges, for the year ended 30 April 2018 (FY18) Metcash reported a 10.7% increase in underlying profit.

The IGA, Foodworks and Home Timber & Hardware (HTH) owner will pay a final dividend of 7 cents per share fully franked and announced a $125 million off-market share buyback.

It was pleasing to see the Group deliver underlying earnings growth despite the continuation of highly competitive and challenging markets, particularly in the Food pillar,” CEO Jeff Adams said.

Recently, Metcash shareholders were rocked by a decision from Drakes Supermarkets in South Australia to supply their own stores. However, Metcash says that decision will not have a material impact on the supermarket’s business in FY19.

However, Metcash’s businesses are facing increasing competition from Wesfarmers Ltd’s (ASX: WES) Coles, Woolworths Group Ltd (ASX: WOW), Aldi and online.

Metcash’s hardware businesses, including Home Timber & Hardware and Mitre 10, reported $2.1 billion in sales revenue and a profit of $69 million, up from $48 million in FY17. On a like-for-like basis, Metcash said robust construction activity boosted HTH and Mitre 10 sales 3.4% and 6%, respectively.

Looking ahead, Metcash said its strong financial position will enable it to buy back around $125 million of shares. The buy-back is expected to be completed in August 2018.

Metcash said the first 7 weeks of FY19 saw some improvement in Food sales but planned investments in the Supermarkets business will impact profits by $10 million in FY19. In addition, the grocery market is expected to remain highly competitive.

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