Invest $20,000 in this ASX 100 dividend stock for $1,126 in passive income

Happy woman looking for groceries. as she watches the Coles share price and Woolworths share price on her phone

There are plenty of options on the ASX if you’re looking for high-yielding ASX dividend stocks. There are the big four banks like Westpac Banking Corp (ASX: WBC), the large miners like BHP Group Ltd (ASX: BHP), and other famous income payers like Telstra Group Ltd (ASX: TLS) or Woolworths Group Ltd (ASX: WOW).

But income investors often overlook another strong income payer on the ASX, who also happens to be a member of the ASX 100.

It’s Metcash Ltd (ASX: MTS). Metcash may not be a household name around the country. But most Australians would have heard of at least one of its retail brands like IGA, Foodland, Bottle-O and Mitre 10.

Metcash has a bit of a different business model to its competitors like Woolworths, Coles Group Ltd (ASX: COL) and Wesfarmers Ltd (ASX: WES). It usually doesn’t own its stores outright, but instead acts as an exclusive wholesale supplier to them.

As we touched on above, Metcash has a strong history of paying large and fully franked dividend payments. To illustrate, this ASX dividend stock currently trades on a healthy dividend yield of 5.64% (8.06% grossed-up with that full franking).

That comes from Metcash’s last two dividend payments. The first was Metcash’s final dividend of 11 cents per share from last August. The second was January’s final dividend, also worth 11 cents per share.

This means that if Metcash pays out the same level of dividend income over the next 12 months as it did over the past 12, investors can expect to receive around $1,126 in annual passive dividend income for every $20,000 they have invested in this ASX dividend stock.

Will Metcash remain a heavyweight ASX dividend stock?

Now, no one can ever assume that a company will continue to pay out the same level of dividend income in a future year as it did in a past one. We cannot say that Metcash’s forward dividend yield is 5.64% today, only that its trailing dividend yield is 5.64%.

However, I think that there is a high likelihood that Metcash will continue to be a dividend powerhouse going forward.

For one, this is a consumer staples company that sells life essentials like food, drinks and household products. Demand for these products tends to be very stable, and resistant to economic maladies like inflation and recessions.

We see this playing out in Metcash’s own numbers. Despite the current cost-of-living crunch, Metcash recently reported a 5% growth rate in its food sales (excluding tobacco) over the ten months to 25 February 2024.

But Metcash also has a healthy dividend track record that I think lends credibility to its status as an ASX dividend stock.

This company has increased its dividends substantially in recent years. 2017 saw Metcash fund just 10.5 cents per share in dividend payments to investors. But by 2023, that had risen to 22 cents per share. The company hasn’t increased its dividends every single year since 2017. But the general trajectory has been up and to the right. I don’t see this changing anytime soon.

So while we can never guarantee the future income payments of any ASX dividend stock, I think there’s a strong likelihood that Metcash will remain a high-yielding investment for the foreseeable future.

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Motley Fool contributor Sebastian Bowen has positions in Telstra Group and Wesfarmers. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Wesfarmers. The Motley Fool Australia has positions in and has recommended Coles Group, Telstra Group, and Wesfarmers. The Motley Fool Australia has recommended Metcash. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.