Investors may be on the lookout for ASX dividend shares that are paying big yields.
Businesses that have relatively low price/earnings ratios (p/e ratio) and higher dividend payout ratios can combine nicely, resulting in a high dividend yield.
Keep in mind that just because a business pays a dividend doesn't automatically make it worth owning for income. However, at the right price, ASX dividend shares can make sound investments.
Here are two to consider:
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Nick Scali Limited (ASX: NCK)
Nick Scali says it sources its furniture products from around the world and imports directly from some of the largest and most respected manufacturers globally.
The ASX dividend share has benefited from the strong retail environment and the spending on homes.
Management say the company's future growth will primarily be driven by the rollout of new stores and increasing online penetration. It's going to accelerate initiatives to capture these opportunities. It has a total of 61 outlets and is aiming for 85 over the long-term.
FY22 saw a significant improvement for the business where sales revenue rose 42.1% to $373 million and underlying net profit after tax (NPAT) grew by 100% to $84.2 million. Numerous improvements across the business saw the earnings before interest and tax (EBIT) margin increase by 940 points to 32.7%.
Nick Scali reported that it saw written online sales orders of $18.3 million in FY21, with $5.5 million in the fourth quarter of FY21. The FY21 fourth quarter was an 84% increase on the fourth quarter of FY20. Full year revenue was $15.3 million, with an EBIT contribution of $8.8 million.
In FY21, Nick Scali paid an annual dividend of $0.65 per share, which translates to a grossed-up dividend yield of 8.2%.
The ASX dividend share is currently rated as a buy by the broker Citi, with a price target of $13.80.
Rio Tinto Limited (ASX: RIO)
The Rio Tinto share price has fallen by around 25% since the end of July 2021.
Some analysts see an opportunity, such as Macquarie Group Ltd (ASX: MQG), which rates Rio Tinto as a buy.
Looking at the FY22 forecast, Macquarie thinks the Rio Tinto share price is valued at 5x the estimated earnings for the next financial year. FY22 could also come with a grossed-up dividend yield of 15.7%.
The FY21 result came with a total dividend of US$5.61 per share, which included an ordinary dividend of US$3.76 per share (up 143%) and a special dividend of US$1.85. This came after a very large increase in profit and cashflow. HY21 free cashflow increased 262% to US$10.2 billion and underlying earnings rose 156% to US$12.2 billion.
Compared to plenty of other miners, this ASX dividend share is diversified and not totally reliant on one commodity. Rio Tinto explains:
We produce iron ore for steel, aluminium for cars and smart phones, copper for wind turbines, diamonds that set the standard for "responsible", titanium for household products and borates for crops that feed the world.
It also has a long-term lithium project in Europe called Jadar on the cards. It could supply enough lithium to power over one million electric vehicles per year.
