ASX dividend shares can provide investors with an attractive level of passive income.
Businesses that have good dividend yields and a compelling future could be options to unlock investment cash flow.
While some companies have high yields and could achieve a lot of income very quickly, there are others that could deliver solid growth in the coming years.
So, I'll offer up a few names as ideas for each strategy.
Instant big passive income
If I'd just won the lottery and I were looking to instantly generate a lot of passive dividend income, then carefully choosing high-yielding ASX dividend shares could be one way to go.
The higher the dividend yield, the less reliable that dividend income can be. However, if the business is trading on a very low multiple of its earnings, meaning it has a low price/earnings (P/E) ratio, then it could pay a very good dividend yield. I would only choose ideas that look like they could grow earnings in the coming years.
There are a few names, at the current prices, that I'd look to achieve a dividend yield of close to 10% or higher.
I think that Shaver Shop Group Ltd (ASX: SSG) could be an effective pick. It's exposed to a growing beauty and personal care market, which is helped by a growing Australian population. It's expanding its product range and increasing the number of stores across Australia and New Zealand.
The business is expected to grow its earnings each year from FY23 to FY25 according to Commsec numbers. At the current Shaver Shop share price it's valued at under 10 times FY23's estimated earnings with a possible FY23 grossed-up dividend yield of 12.5%.
Adairs Ltd (ASX: ADH) is another ASX retail share that's predicted to grow its earnings and dividend each year between FY23 to FY25. The furniture and homewares business has plans to grow its store network, upsize some existing Adairs stores, expand its product ranges and increase the number of members.
Using Commsec numbers, it's valued at under 10 times FY23's estimated earnings with a potential grossed-up dividend yield of 9.3%.
GQG Partners Inc (ASX: GQG) is another interesting ASX dividend share for potential passive income. The business has guided that it's going to pay 90% of its distributable earnings to investors each year.
It's a US fund manager that is regularly attracting more fund inflows and achieving good returns on its existing funds. GQG is also looking to expand geographically, in places like Australia and Canada.
By FY25 it could be paying a dividend yield of around 10% according to estimates on Commsec.
A portfolio worth $500,000 could generate $50,000 of income if it had a 10% dividend yield.
Long-term dividend growth
I also believe that there are some very compelling ASX shares that could deliver long-term value creation while also growing the income payments to shareholders. This could help achieve strong annual passive income after a number of years of investing.
While ASX dividend shares may not achieve the strongest capital growth, the good ones could achieve good compounding growth over the long term.
Brickworks Limited (ASX: BKW) already has a record of not cutting its dividend for around 45 years. I like the impressive industrial properties that are being built on excess Brickworks land. The large exposure to Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares can also help grow Brickworks' cash flow and the underlying value in the coming years.
Lovisa Holdings Ltd (ASX: LOV) is a retailer that sells affordable jewellery to younger shoppers. It already has a global store base, but this number could expand significantly, particularly if it's able to grow in places like Europe, the US, China (including Hong Kong) and India. I think earnings could grow very strongly over the rest of the 2020s.
Universal Store Holdings Ltd (ASX: UNI) is an apparel retailer that's focused on the younger demographic. I think this segment of the market may be less affected by a possible recession compared to the general retail segment. The business has plans to grow its store network and I like that it's also looking to expand with other brands.
I believe these three businesses are just a few of the names that could help deliver passive income and good capital growth over the coming years for investors.
