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Is this ASX 200 share a top idea for dividend income after a strong update?

Metcash Limited (ASX: MTS) is a growing ASX 200 (ASX: XJO) share. It updated the market this week – is it a top ASX dividend shares at the current Metcash share price?

The business has three segments – liquor, hardware and food. It’s the supplier to IGA supermarkets, Cellarbrations, The Bottle-O, IGA Liquor, Porters Liquor, Thirsty Camel, Big Bargain Bottleshop and Duncans. Finally, it owns the brands Mitre 10, Home Timber & Hardware (IHG) and Total Tools.

What did Metcash say?

The business announced a trading update for the financial year to date in FY23 for the 17 weeks to 28 August. It gave this update at its annual general meeting (AGM).

It said that strong sales momentum has continued in the first half of FY23 in all of its pillars supported by continued preference for local neighbourhood shopping underpinned by the “improved competitiveness” of our independent retail networks, and by inflation.

Metcash said that group sales were up 8.9%. Food sales were up 4.3%, or 6.6% excluding tobacco.

It said that hardware sales increased 19.5% with “continued strong demand” in both IHG and Total Tools, acquisitions and the impact of inflation. IHG sales increased 11.7%. Like for like retail scan sales for IHG grew 7.3%.

Inflation remained high, particularly in trade, albeit there are signs of some easing with an improvement in the availability of supply.

Liquor sales increased 11.5%, reflecting a recovery in on-premise sales and strong demand from retail stores.

Other commentary

Sales were reportedly buoyed by higher inflation.

Metcash said that it’s focused on keeping retailers “well stocked and price competitive” and helping provide better value options through offering a wider range of products at competitive prices.

COVID costs have started to normalise and there has been some improvement in supply chain challenges with an improvement in stock and service levels. However, labour availability remains “very tight” and it’s seeing supply chain and labour cost pressures.

Is it a strong ASX 200 dividend share?

In FY22, it grew its dividend by 22.9% to 21.5 cents. At the current Metcash share price, that translates into a dividend yield of 7.5% including the franking credits.

It has a target dividend payout ratio of around 70% of underlying net profit after tax (NPAT).

If the profit grows, then the dividend can grow as well. Metcash seems set to have another good year in FY23, so I’d say it’s a quality ASX dividend share, though there may be a few names within the ASX 200 that could be even better. I’d be happy to buy shares, though.

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At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.
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