ASX dividend shares are rising on investor radars.
More investors are seeking out income paying shares as fast rising interest rates put a brake on the past years of significant share price growth.
But if you're on the hunt for ASX dividend shares you'll want to look at more than simply the trailing yields these companies pay.
Even if they continue to payout a substantial portion of their profits to shareholders, what's the outlook for these profits? And are they likely to be able to deliver some capital growth as well?
Finding an ASX dividend share that ticks the right boxes is no easy feat in today's volatile market.
But Jack Collopy, portfolio manager at Perpetual, brought one to our attention in a recent interview with Livewire.
Invest in a sector with 'pockets of good value'
Collopy was asked to offer a sector he believes will outperform as the 2023 financial year unfolds.
"One sector where we see pockets of good value currently is consumer discretionary," Collopy said. "Many of the small and mid-cap listed retailers have been sold off aggressively in recent months on concerns that central banks are going to push economies into recession in their attempts to get the inflation genie back in the bottle."
Perpetual believes "the market is pricing in a very negative scenario for many of the retail stocks," he added. "In general, they are coming into this tougher environment with very strong balance sheets and there are some valid reasons why the Australian consumer may be more resilient than expected."
'Extremely well run' ASX dividend share
Collopy singled out Nick Scali Limited (ASX: NCK) as a retail stock Perpetual has recently increased its holdings of.
"Nick Scali is extremely well run, has an excellent balance sheet and we think the recent Plush acquisition will prove to be a great use of capital," he said.
Collopy continued:
Whilst there's a chance that trading is volatile and challenging over the near term, we think a lot of this is already reflected in the share price and that NCK will continue to become a better business and reward shareholders over time.
Collopy didn't mention Nick Scali's lengthy track record as a reliable ASX dividend share.
But the company has made two regular dividend payments dating back to 2014, including the horror pandemic addled year of 2020.
The Nick Scali share price is down 39% year-to-date, closing yesterday at $9.45 per share.
At that price, the furniture focused retail company pays a trailing dividend yield of 6.3%, fully franked.
