Two ASX Dividend Stocks to Consider Instead of BHP

Owning BHP Group Ltd (ASX: BHP) shares is popular for passive income, but it's not the only ASX dividend stock that can provide a sizeable dividend yield. The ASX mining share generates strong cash flow and usually decides on a generous dividend payout ratio, but we don't want to put all of our investment eggs in one basket. It is worthwhile to own a variety of businesses that can offer strong dividends. We believe that BHP's commodity diversification, including iron ore, copper, and potash, is a strong foundation, but the two stocks below could be useful additions.


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Coles Group Ltd (ASX: COL)

Coles Group Ltd (ASX: COL) is one of the largest supermarket businesses in Australia. The company's defensive earnings profile makes it a reliable choice for income diversification. Everyone needs to eat, and Coles' ability to produce steady earnings could provide a more consistent dividend profile compared to BHP shares.


Investing for passive income requires payouts that continue even during economic downturns. Coles has managed to increase its annual payout each year since it demerged from Wesfarmers Ltd (ASX: WES) and became an independent entity in late 2018.


Coles continues to demonstrate solid sales performance. In the third quarter of FY24, supermarket revenue rose 5.1% to $9.06 billion. This growth rate positions Coles to potentially outperform Woolworths Group Ltd (ASX: WOW).


According to Commsec estimates, Coles shareholders could receive a grossed-up dividend yield of 5.5% in FY24 and 6.7% in FY26. This makes Coles an attractive option for those seeking reliable dividend income.

Step One Clothing Ltd (ASX: STP)

Step One Clothing Ltd (ASX: STP) is a direct-to-consumer online retailer specializing in 'innerwear'. The company prides itself on offering high-quality, organically grown, certified sustainable, and ethically manufactured products. 


The demand for 'greener' products is increasing as the world aims for net zero emissions by 2050. Step One's exclusive range of innerwear aligns perfectly with this trend, making it a compelling investment.


While the company currently generates most of its revenue in Australia, it is expanding rapidly in the UK and the US—markets that are significantly larger. In the FY24 first-half results, UK revenue rose 38% to $14.6 million, and US revenue increased by an impressive 256% to $4.1 million. This contributed to a total revenue increase of 25.5% to $45 million in HY24.


Step One also reported increasing profit margins, with net profit after tax (NPAT) rising by 34.7% to $7.1 million in HY24. This growth in profitability enhances the company’s ability to provide strong dividend returns to its shareholders.


Step One is pursuing several growth initiatives, such as expanding its women's product lines, forming partnerships with retailers and organizations, entering the US market with its women's product lines, and diversifying its sales channels and marketplaces. These initiatives are expected to drive further growth and profitability.


Step One currently offers a grossed-up dividend yield of 8%, which is a solid starting yield for investors seeking strong dividend income.


Both Coles Group Ltd (ASX: COL) and Step One Clothing Ltd (ASX: STP) present compelling opportunities for income diversification. Coles' defensive earnings and consistent dividend growth make it a reliable choice, while Step One's innovative product offering and rapid international growth offer exciting potential for strong dividend returns. By diversifying investments across these two stocks, alongside BHP Group Ltd (ASX: BHP), investors can achieve a balanced and robust income portfolio.
Location: Australia

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