If you're approaching retirement, now could be the time to think about your next investment phase.
While there's no harm in allocating a small part of your portfolio to higher risk growth shares, dedicating the bulk of it to dividend shares could be the smart thing to do.
That's because ASX dividend shares can provide investors with a relatively reliable way to build a passive income. They're also generally lower risk options, so you're unlikely to have your investment wiped out if things don't go to plan.
And if you can find them while they're cheap, you can potentially benefit from the winning combination of higher than average yields and capital returns.
But how do you find ASX dividend shares to buy?
Fortunately for income investors, finding potentially good value ASX dividend shares isn't hard this year due to the market volatility.
A number of quality shares have crashed materially lower than where they were trading 12 months ago, potentially creating a buying opportunity for investors.
Though, it is worth remembering that just because a share has sunk deep into the red, it doesn't mean that it is good value.
More often than not, cheap shares have become cheap for a reason. Changes in the economy could have soured their outlooks and put their earnings and dividends at risk. So, don't just go jumping in and buying everything that looks cheap as you may end up catching a falling knife.
But that said, the market does have a habit of overselling quality shares now and then. These are the shares we want to find among the market wreckage.
I would look for beaten down ASX dividend shares with strong business models, robust balance sheets, competitive advantages, and sustainable payouts. Ideally, you'll want to spread them across various sectors to ensure that you diversify your portfolio.
But which shares could you buy now?
Two ASX dividend shares that come immediately to mind are footwear and fashion retailer Accent Group Ltd (ASX: AX1) and conglomerate Wesfarmers Ltd (ASX: WES). They are down 33% and 20%, respectively, since the start of 2022.
These declines have been driven largely to concerns that their short term performances could be impacted by current macroeconomic factors.
However, it is worth remembering that inflation will ease in time and rates will soon find their peak, leaving these quality businesses to resume their solid growth over the long term.
In the meantime, Goldman Sachs has a buy rating and $2.20 price target on Accent's shares and is expecting fully franked dividend yields of 6.2% in FY 2023 and 7% in FY 2024.
Whereas Morgans is a fan of Wesfarmers and has an add rating and $55.60 price target on its shares. It is forecasting fully franked dividend yields of 3.8% in FY 2023 and 4% in FY 2024.
