The ASX dividend share segment of the market has seen some pain in 2022. Certainly, it's not just tech shares and retail shares that have been hit. But, with 2023 just around the corner, it seems like a good time to pick through the carnage and find some undervalued names.
One of the main benefits of a lower share price is that not only is the business seemingly better value, but the share's dividend yield is also boosted. For example, if a business with a 5% dividend yield sees a 10% share price drop then the yield becomes 5.5%.
I think that the following ASX dividend shares could be contenders for good investment income and potentially a rise in the share price in 2023:
Brickworks (ASX: BKW)
Let's start with the company's projected dividend yield. According to Commsec, Brickworks could pay an annual dividend of 65 cents per share in FY23. That would be a grossed-up dividend yield of 4.25%. Brickworks hasn't cut its dividend for over forty years, though dividends are not guaranteed like term deposits.
Brickworks is already a market leader in bricks in Australia as well as the northeast of the US. But, it also recently announced that it will be supplying a minimum of 10 million bricks per year to Brickability in the UK with a ten-year supply agreement. Brickworks expects to "build on this over time".
The ASX dividend share could also realise value as its industrial joint venture trust with Goodman Group (ASX: GMG) continues to develop large warehouses on vacant land. As a result of "strong tenant demand", it's experiencing "significant rental growth" across new developments and lease renewals which is expected to "offset the impact of higher interest rates".
I also believe that its large investment in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) can continue to achieve decent long-term returns thanks to its diversified portfolio.
Nick Scali Limited (ASX: NCK)
Nick Scali is a sizeable retailer of furniture with a national store network. It also recently acquired the Plush-Think Sofas business, which expanded its scale.
The Nick Scali share price has declined by more than a third in 2022. Commsec numbers suggest a potential annual dividend per share of 72 cents in FY23, suggesting a potential grossed-up dividend yield of around 10%.
It may be that each individual Nick Scali store doesn't sell as much as it did during the COVID-19 period.
However, recent trading has been very promising. In the four months to the end of October, sales revenue was up 74% year over year, though the comparative period was before the Plush acquisition. The gross profit margin improved by 180 basis points to 61.3%. This seems like a positive combination to me for the ASX dividend share.
HY23 net profit after tax (NPAT) is expected to grow by 57% to 66%, to a range of $56 million to $59 million.
I think expansion of the store network and more online sales will help profit more than the market may be accounting for in the medium term.
Pinnacle Investment Management Group Ltd (ASX: PNI)
Pinnacle is involved in the funds management industry. It invests in fund managers, does a lot of the back-office work and helps them grow. The pain in share markets has hurt the company's growth and the underlying funds under management (FUM).
In 2022 to date, the Pinnacle share price has fallen more than 40%. This has boosted the prospective dividend yield considerably. Commsec estimates suggest that the ASX dividend share could pay an annual dividend per share of 32 cents in FY23 and 37 cents per share in FY24. This translates into a forward grossed-up dividend yield of 5.2% in FY23 and 5.9% in FY24.
The underlying managers are still the same quality they were 12 months ago, in my view. Pinnacle has more managers in the stable, adding Five V and Langdon Equity Partners in recent times.
Once interest rates stop rising, I think that Pinnacle can return to attractive FUM growth.
