Metcash Ltd (ASX: MTS), a prominent ASX dividend share, has captured the attention of income-focused investors with a notable 21% increase in its share price over the past year. However, recent months have seen a slight deceleration in this upward trend. Despite this, Metcash’s robust operational momentum, improving cash flow, and attractive dividend yields continue to make it a compelling choice for those seeking passive income.
Resilient Food and Liquor Distribution
Metcash’s diverse business operations, which encompass food, liquor, and hardware divisions, are demonstrating significant resilience. The company’s food and liquor segments are particularly strong, supplying products to a wide array of independent retailers across Australia. These include well-known names such as IGA, Cellarbrations, IGA Liquor, The Bottle-O, Porters, and Thirsty Camel.
In addition to retail distribution, Metcash also operates a foodservice division that caters to commercial clients, including hotels, restaurants, and cafes. This broad spectrum of operations underpins the company’s stability and growth potential.
Challenges and Opportunities in the Hardware Sector
Metcash holds the position of the second-largest player in Australia’s hardware market, with brands like Mitre 10, Home Hardware, and Total Tools under its umbrella. The hardware division has faced challenges in recent years due to subdued construction activity. However, there are signs of a potential turnaround.
Following a challenging fiscal year 2025, analysts forecast a 10% increase in Metcash’s earnings, reaching approximately $300 million in FY26, with another 10% growth anticipated in FY27. This optimistic outlook is supported by a recent trading update, which revealed a 5.1% rise in total sales excluding tobacco for the 18 weeks ending 31 August 2025.
Total food sales increased by 8.6% excluding tobacco, liquor sales rose by 1.5%, and Total Tools and Hardware Group sales grew by 1.8%.
Reliable Dividend Payouts
On the income front, Metcash has consistently paid two fully franked dividends annually since 2017. The company distributes approximately 70% of its underlying net profit as dividends, resulting in a total dividend per share of 18 cents for FY25. This translates to a trailing grossed-up dividend yield of 6.75%, inclusive of franking credits.
UBS projects that Metcash will increase its dividend payouts each year from FY25 to FY29, offering promising prospects for investors focused on generating passive income. The share price, currently at $3.76, is expected to see moderate to strong upside, with analysts setting an average price target of $4.30, indicating a potential 15% gain.
Most analysts predict that Metcash’s total earnings, including dividends, could surpass the 20% mark.
Expert Opinions and Market Outlook
Broker Shaw and Partners considers Metcash a viable option for income investors but maintains a “hold” rating. The broker acknowledges the company’s strengths but advises caution given the current market conditions.
Metcash’s ability to navigate economic challenges and capitalize on growth opportunities in its core sectors will be crucial in maintaining its appeal to investors. As the company continues to diversify and strengthen its business model, it remains a noteworthy contender in the ASX dividend share landscape.
Looking ahead, Metcash’s strategic initiatives and market positioning will be key determinants of its future performance. Investors will be closely monitoring the company’s ability to sustain its growth trajectory and deliver consistent returns.
