ASX dividend shares could be the answer for boosting passive investment income for investors.
Whilst expectations are growing that interest rates are going to rise this year, the Australian interest rate will still likely be materially below 'normal' inflation of 2% to 3%.
But there are businesses paying out an attractive amount of profit each year to investors, like these two:
Nick Scali Limited (ASX: NCK)
Nick Scali is one of Australia's biggest retailers of furniture. Its market position has increased with the announced acquisition of Plush-Think Sofas by Nick Scali for an enterprise value of $103 million on a cash-free and debt-free basis.
Auscap Asset Management Tim Carleton, according to the Australian Financial Review, said that he believes that the market is being too harsh on Nick Scali with expectations that demand will drop as the economy 'normalises'. He said:
You've got a business that should be a beneficiary of this big housing cycle that we're in at the moment, that has really exciting opportunities in terms of what they want to do.
Their online business has EBIT margins in the mid-50s. And yet, it's trading on low double-digit multiple earnings for a business that probably has one of the best management teams in the market.
It's very conservatively run. They don't do dilutive things. There's the same number of shares on issue today as there were on listing.
In the FY22 half-year result, the ASX dividend share revealed it made $13.7 million of sales online, generating earnings before interest and tax (EBIT) of $8 million.
But the Nick Scali share price has actually fallen by 18.4% in the 2022 year to date.
How big is the Nick Scali dividend going to be in FY22? Commsec numbers suggest a grossed-up dividend yield of 7.3% in this financial year and that it's priced at 14x FY22's estimated earnings.
Charter Hall Retail REIT (ASX: CQR)
This multi-billion real estate investment trust (REIT) owns a portfolio of retail assets around Australia.
It recently announced its result of the December portfolio valuations which saw an 8.5% increase on prior book valuations. The net tangible assets (NTA) increased 11.7% to $4.48. The Charter Hall Retail REIT share price of $4.16 is at a 7% discount to this.
That valuation also came with an announcement of a distribution of 11.7 cents for the period to 31 December 2021.
Macquarie currently rates the ASX dividend share as a buy with a price target of $4.45. The broker is expecting the REIT to pay an annual distribution of 24.5 cents per unit in FY22 – this is a yield of 5.9%. In FY23, Macquarie is expecting a yield of 6.5%.
