2 ASX dividend shares expected to pay BIG income

Nick Scali and Adairs are both expected to pay large dividends in FY22.

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There are a certain number of ASX dividend shares that are projected to pay large income payments to shareholders in FY22.

That’s based on what dividends those businesses could pay in the near future and the relatively low price/earnings ratio, allowing for an attractive dividend yield.

There are some industries that are known for their higher dividend payments. But others, such as retail, can often trade on a lower p/e ratio, which helps the yield for investors.

With that in mind, here are two ASX dividend shares:

Nick Scali Limited (ASX: NCK)

Nick Scali is one of the largest furniture retailers in Australia. It recently got even bigger after announcing and completing the acquisition of Plush Sofas which has 46 showrooms.

It’s currently rated as a buy by the broker Citi with a price target of $16.80.

In FY23, the broker is expecting Nick Scali to pay an annual dividend of 68.3 cents per share, which translates into a grossed-up dividend yield of 6.6%.

Showroom growth is a key pillar of Nick Scali’s growth. In FY21 it opened three new stores and in the first quarter of FY22 it added another location in New Zealand, brining the total to 62 stores.

Management are also looking to grow the company’s digital channel and develop its capabilities, which comes with elevated profit margins.

The ASX dividend share is expecting to be able to lift Plush’s profit margins as it benefits from synergies. It’s expecting the acquisition to add to earnings per share (EPS) in FY22. Some of those synergies includes its supply chain, advertising, purchasing and management. Nick Scali reckons it can more than double the number of Plush stores in the long-term across Australia and New Zealand.

During the lockdowns, online sales order growth was “exceptional”  and October trading was “buoyant”.

According to Citi, the Nick Scali share price is valued at 16x FY23’s estimated earnings.

Adairs Ltd (ASX: ADH)

Adairs is another leading business in the retail space. It specialises in homewares and furnishings. However, it has growing exposure to furniture. The business has owned the online-only business Mocka for a while. But it has just announced the acquisition of Focus on Furniture as well, for $80 million.

The ASX dividend share is currently rated as a buy by the broker UBS with a price target of $5.90. That suggests a potential rise of the Adairs share price of more than 60% over the next 12 months, if the broker is correct.

The broker thinks there are a number of positives to the acquisition, including diversification of earnings, more exposure to customers, utilising its stores better and growing profit margins.

When Adairs told the market about the deal, it said that Focus was a strongly profitable business with growth opportunities including a national store roll out and online growth.

Management said that there is a complementary customer product overlap with opportunities to leverage strengths in store expansion, product development and last mile delivery capability.

Adairs says the Australian home furniture total addressable market is worth around $8.3 billion. It’s expecting double digit EPS accretion in FY23, the first full year of ownership, thanks to this acquisition.

The ASX dividend share still has its plan for Adairs to increase its total retail floor area with larger stores as well as growing online sales and its membership numbers.

UBS thinks Adairs could pay a grossed-up dividend yield of 11.7% in FY23. UBS numbers value the business at 9x FY23’s estimated earnings.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended ADAIRS FPO. The Motley Fool Australia owns shares of and has recommended ADAIRS FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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