Some ASX dividend stocks can seem expensive, while others appear very cheap. I think the ones that have good dividend yields and are expected to grow earnings could be great options for passive income.
When an ASX share has a low price/earnings (P/E) ratio it naturally boosts the dividend yield on offer.
In valuation terms, a lower P/E ratio is seen as cheaper. It describes what multiple of earnings the business is trading at. The lower the better, if the business is expected to grow earnings over time.
I think these are two of the best cheap ASX shares to consider.
Shaver Shop Group Ltd (ASX: SSG)
Shaver Shop is a leading retailer in Australia of hair removal products. It also offers beauty and oral care products.
The business is part of a growing market. According to Shaver Shop, there is a growing demand for beauty and personal care products – the beauty and personal care market in Australia is expected to grow from just over $10 billion to $12 billion by 2026.
New products are released every year, enabling the business to sell the most advanced products in those categories. The business is growing its store network, with its eyes on growth in New Zealand.
The ASX dividend stock has grown its dividend each year since 2017 and this is expected to continue to FY25. According to Commsec, it could pay a grossed-up dividend yield of 12.1% in FY23 and 13.8% by FY25.
The business seems very cheap to me. Using Commsec's EPS projection of 12.6 cents, it's priced at 10 times FY23's estimated earnings, with growth forecast for FY24 and FY25.
Pengana Capital Group Ltd (ASX: PCG)
Pengana is a fund manager that offers a variety of investment funds for investors. The business ended December 2022 with funds under management (FUM) of $3.2 billion, which is similar to where it finished June 2022.
Investment markets have generally risen since December, giving the company a positive outlook for the second half of FY23.
At the company's annual general meeting (AGM), it said that private market strategies are expected to become the dominant source of profitability. Pengana said it's well-placed to grow in this market, with its global private equity vehicle Pengana Equity Trust Pvt (ASX: PE1).
The ASX dividend stock has also been working on developing private credit strategies. It said it has "strong growth potential with large capacities." It will be launched in the second half of FY23.
The latest half-year dividend from Pengana was 8 cents per share. If Pengana were to pay 16 cents per share in FY23, it would be a grossed-up dividend yield of 13%. Since 9 February 2023, the Pengana share price has dropped around 23%, making it seem much cheaper.
