2023 looks like a great idea to be searching for ASX dividend shares that can generate passive income for investors.
Last year saw many share prices drop noticeably. Not only does this mean that those businesses are on a cheaper valuation, but the dividend yields have received a boost too.
For businesses that are expected to grow the dividend in the coming years, the lower share prices are a welcome boost for income-focused investors.
These are two that look like good options with attractive yields.
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Rural Funds Group (ASX: RFF)
Rural Funds is a real estate investment trust (REIT) that owns a portfolio of agricultural properties across vineyards, almonds, macadamias, cattle and cropping (sugar and cotton).
One of the key goals of the business is to grow its distribution by 4% per annum for investors. That's typically better than inflation and can compound strongly over time.
The business has rental income built into its contracts with tenants, linked to inflation or there's a fixed rental increase annually. This is useful organic growth for the ASX dividend share's passive income.
Another thing that can help the passive income is that Rural Funds is investing in increasing farm productivity, with aspects like improved water access.
It pays equal amounts quarterly, providing regular income for investors. In FY23, the total distribution is expected to be 12.2 cents per unit. This translates into an FY23 distribution yield of 5%, or around 1.25% per quarter.
Shaver Shop Group Ltd (ASX: SSG)
Shaver Shop is an ASX retail share that sells beauty and personal care through a store network and online. This beauty and personal care market is worth over $10 billion in Australia and New Zealand and is expected to grow to $12 billion by 2026. That's a useful tailwind for growing passive income.
The company has grown its dividend each year since FY17 and Commsec numbers suggest another increase is coming in FY23. It could grow its annual dividend by 5% to 10.5 cents per share, translating into a forward grossed-up dividend yield of 13%. But, that's just a projection.
In FY22 to 6 November, total sales were up 13% and the gross profit margin was "consistently up" on the prior year.
Based on Commsec projections, the Shaver Shop share price is valued at 9 times FY23's estimated earnings.
$200 per month of passive income
If an investor were to buy an equal amount of those two passive income ideas, it would be an average dividend yield of 9% including the franking credits (which are accessed when the tax return is done).
I think these two ASX dividend shares could do well as part of a diversified dividend portfolio.
A monthly income of $200 translates into an annual income of $2,400. With these two names and an average yield of 9%, it would take a total investment of $27,000 to generate $2,400 of total income.
That annual total could just be from year one though. Rural Funds aims to keep growing its payment by 4% every year, while Commsec numbers suggest dividend growth in FY24 and FY25 as well. So, the annual income could keep rising from $2,400.
