Snapping up cheap ASX dividend shares could be a profitable decision over the coming decade.
Particularly on the back of 2022's volatility. The S&P/ASX 200 Index (ASX: XJO) has fallen 9.5% so far this year. Meanwhile, the All Ordinaries Index (ASX: XAO) has tumbled 11%.
That's likely left some quality ASX dividend shares trading for cheap prices. More excitingly, I believe many have the potential to double over the next 10 years. Here's why.
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Can cheap ASX dividend shares return 100% over 10 years?
When is a good time to build a portfolio of quality ASX dividend shares? Well, I'd argue now.
The market's recent downturn, paired with historical returns, could set the stage for today's cheap dividend stocks to return more than 100% over the next decade.
They could also provide an investor with passive income during that time. Not to mention, a portfolio of quality ASX shares – including those that pay dividends – can act as an inflation hedge.
Inflation erodes the value of cash, but shares offering a decent upside and growing dividends can help offset that erosion. With Australian inflation at a 32-year high, a buffer against its impact could be an attractive prospect.
But can ASX dividend shares really double over the coming decade?
Let's do the math
Interestingly, for a stock's value to double over a decade, it need only post an average annual return of around 7.2%. That's the power of compounding, folks.
Though, that's slightly higher than the 10-year average share price return on the ASX 200. It stood at around 6.6% at the end of 2021, according to data from S&P Dow Jones Indices.
However, that fails to factor in dividends. Or, more notably, compounding dividends.
If a shareholder were to spend $1,000 on shares that grew in value by 6.6% annually and consistently offered a reasonable 4.5% dividend yield – and they reinvested all dividends over a 10-year period – they'd end up with a holding worth close to $2,900.
That's assuming the imagined stock pays two dividends each year and an investor pays no tax on their payouts (and receives no franking benefits).
Thus, it's very likely many of today's cheap ASX dividend shares could return more than 100% to investors over the coming 10 years. Though, it's always worth noting that even the best-considered investment isn't guaranteed to post a return.
