ASX dividend shares could be the answer for generating investment income.
Interest rates are still very low at this stage. After the recent ASX share market volatility, some businesses have seen price declines. This has also had the impact of pushing up potential dividend yields.
Here are two businesses that could be attractive for dividends:
Adairs Ltd (ASX: ADH)
Adairs is a business that sells homewares and furniture. The company has three different brands – Adairs, Mocka, and Focus on Furniture.
In terms of the expected dividend, Adairs is predicted to pay an annual dividend of 19 cents per share in 2022, 26 cents per share in FY23, and 30 cents per share in FY24. This translates into forward grossed-up dividend yields of 10.7% in FY22, 14.7% in FY23, and 16.9% in FY24. Even if the dividend yields aren’t quite that high in the next few years, they are still likely to be pretty high.
The ASX dividend share is setting the growth foundations in a number of ways. In the first half of FY22, it opened two new homemaker centres and upsized four stores. It grew its store floor space by 3.8% in HY22. It increased its membership base by 10% over the prior 12 months, with ‘Linen Lovers’ approaching one million members.
Online sales represent 43% of total group sales and online sales continue to grow across all brands.
A new national distribution centre has been opened and the company’s supply chain consolidation project will be complete by June 2022. This is expected to save a few million dollars in costs annually once fully operational.
The company plans to keep increasing its total retail floor space, expand the range, and grow the Focus on Furniture business (which was recently acquired).
I think the Adairs share price is looking cheap right now, at under 7x FY23’s estimated earnings, according to Commsec.
GQG Partners Inc (ASX: GQG)
GQG is a fund manager that has a variety of investment strategies. Its investment performance is continuing to attract inflows of funds under management (FUM).
In the quarter for the three months to March 2022, it experienced net inflows of US$3.4 billion, despite “an extremely challenging macro environment”.
I think the fund manager has an attractive future if it can continue to win net inflows at the pace that it has been.
In my opinion, the 20% drop in the GQG Partners share price in 2022 makes the projected dividend much more attractive for investors. The ASX dividend share has committed to paying a high dividend payout ratio of its earnings each year.
According to Commsec, GQG is predicted to pay a dividend yield of 9.3% in FY23 and 10.4% in FY24.
I believe the business is setting itself up for long-term growth by offering its investment strategies in other markets outside of the US, such as Australia and Canada. FUM growth could be useful for the GQG profit and dividends because of the operating leverage of the fund’s management model. It doesn’t cost GQG much to manage another $1 billion of FUM.