There are a handful of ASX shares that are expected to pay very big dividend yields in FY21.
Businesses have a relatively low price/earnings ratio and have a high dividend payout ratio can lead to high dividend yields.
However, dividends are not guaranteed year to year. They can be cut quite substantially during difficult times.
These two ASX dividend shares are expected to have high dividend yields this financial year:
Adairs Ltd (ASX: ADH)
Looking at the trailing grossed-up dividend yield of Adairs, it is currently 7.5%.
But brokers are expecting more growth of the dividend with the full year result. Ord Minnett expects Adairs to pay a FY21 dividend of $0.28 per share, which would be a grossed-up dividend yield of 8.8%. Morgans is expecting an even bigger dividend from Adairs – a full year payout of $0.31 per share, which would be a grossed-up yield of 9.75%.
The homewares business has been experiencing a lot of growth as consumers open their wallets over this strange period of the last 12 months. Most people have been spending more time in their houses after the onset of COVID-19. People have been investing in their homes.
Looking at the FY21 half-year result, group sales were up 34.8% to $243 million – driven by online sales growth of 95.2%. Statutory profit was up 233.4% with the business focused on managing its gross profit margin rate (which increased 690 basis points to 67.8%).
Adairs’ underlying net operating cashflow was strong enough (up 91%) for the business to end the period with a net cash position of $22.1 million. It had $46.3 million of net debt a year prior to that.
Management expect that the COVID-19 environment will cause people to continue to spend strongly in home improvement and home decoration.
Morgans currently rates Adairs as a buy.
Nick Scali Limited (ASX: NCK)
Nick Scali is another ASX retail share that is expected to pay shareholders with a large dividend yield.
Looking at the trailing dividends of Nick Scali, it has a grossed-up dividend yield of 8.5%.
Citi expects the furniture business to pay a FY21 dividend of $0.80 per share. That would amount to a grossed-up dividend yield of 10.8%. However, it should be noted that Citi then expects the profit and dividend to decline in FY22. The next financial year’s payout is expected to be 48.6 cents per share, equating to a grossed-up dividend yield of 6.5%.
Nick Scali continues to see high demand for its med-premium lounges and furniture.
Sales remained strong during the quarter ending 31 March 2021 with written sales growth of 50%. The order bank at the end of April was still at an elevated level, which provides a foundation for revenue growth in FY22.
Nick Scali is going to continue to grow profit in a number of different ways. Expanding the store network is one of the goals, along with growth of its digital offering and launching adjacent product categories. Management are also looking at acquisition opportunities, but only where Nick Scali can add considerable value and only where financials and strategic merits are compelling.