Some of the smaller ASX dividend shares might be able to pay some of the largest dividend yields.
A business like Commonwealth Bank of Australia (ASX: CBA) is solid, but it gets a lot of fund manager and household attention. It's also a very large business that is unlikely to deliver a lot of growth and due to many investors focusing on the big bank, it's not as likely to be cheap as the smaller, undiscovered names.
But it's worth pointing out that just because something is small doesn't mean it will do well. However, the lower valuation could make up for that and give investors a bit of a margin of safety.
The three smaller ASX dividend shares below are ones that are buy-rated and are expected to pay large income yields.
Image source: Getty Images
Virgin Money UK (ASX: VUK)
Virgin Money is a UK-based bank. It's not one of the biggest but it is still benefiting from the rising interest rate environment, which is helping its lending margins.
The broker Macquarie thinks the bank is priced cheaply compared to its asset value and a recent share buyback is also useful for shareholders. Macquarie thinks that the ASX dividend share can see rising earnings even if bad debts increase.
On Macquarie's numbers, Virgin Money is expected to pay a dividend yield of 7% in FY23 and it could be valued at six times FY23's estimated earnings.
Lindsay Australia Ltd (ASX: LAU)
The ASX dividend share describes itself as an integrated transport, logistics, and rural supply company. Its focus is on road transport, logistics, and warehousing services as well as specialist services to rural suppliers, with an emphasis on the horticultural industry.
Lindsay is aiming to diversify its revenue sources, which has seen it expand into rail. It has also acquired 27 refrigerated containers in the first quarter of FY23, expanding the fleet to 403 containers. Rail will "continue to deliver revenue growth into FY23", the company says.
With its road segment, it's expanding its trailer fleet to increase operational capacity. In the rural division, it is continuing to explore opportunities to expand in "key horticulture regions" either organically with low-cost start-ups or by acquisitions of established businesses.
It will continue to assess acquisition opportunities that could diversify its geographical reach and range of services.
But it expects the high demand for services to persist. In FY23, it's expecting earnings before interest, tax, depreciation and amortisation (EBITDA) of between $68 million to $71 million.
It's rated as a buy by the broker Ord Minnett, with a price target of 76 cents. It's expected to pay a dividend yield of 6.1% in FY23.
COG Financial Services Ltd (ASX: COG)
This business describes itself as Australia's leading finance broker aggregator and equipment leasing business for small to medium-sized enterprises (SMEs).
In FY23 to date, COG Financial Services has seen underlying net profit (NPATA) rise by 26% year-over-year to 31 October 2022. There has been "strong activity" in all segments and this is expected to continue "given mega trends supporting mining, infrastructure, transport and agriculture".
The company said its scale means it can now support significant investment in its own software platform, giving it "the advantage of having the best offering in the market".
This ASX dividend share is rated as a buy by the broker Ord Minnett with a price target of $2.11. The broker likes the growth the business is seeing in multiple areas. COG Financial is projected to pay a grossed-up dividend yield of 8.6% in FY23.
