The ASX dividend share I'm going to tell you about is expected to pay a dividend yield of more than 10% over the next few financial years. The company I'm going to tell you about is Adairs Ltd (ASX: ADH), an ASX 300 retail share.
There aren't too many ASX shares that have seen as much volatility as Adairs over the last year and a half. Since June 2021, its share price has shed around 50%.
Although since 28 September 2022, the Adairs share price is up 40%.
But from 1 February 2023, the ASX dividend share has dropped 17%.
I think such share price changes give investors the opportunity to buy into the business for a much cheaper price.
Not only does a lower share price mean better value, but it also pushes up the prospective dividend yield.
Let's have a look at Adairs' dividend estimates to FY25.
How much passive income is this ASX 300 dividend share going to pay?
I think that the first half of FY23 will be another solid period for the homewares and furniture retailer.
The fact that the first half of FY22 was impacted by lockdowns could mean that HY23 shows solid revenue growth, which hopefully translates into profit growth.
In FY23, Adairs could pay an annual dividend per share of 18 cents, Commsec numbers suggest. That would translate into a grossed-up dividend yield of 10.6%. The dividend alone could help deliver a market-beating return this year — if the Adairs share price doesn't fall.
Estimates suggest that earnings per share (EPS) could rise to 35 cents by FY25. This could fund a dividend per share of 24.5 cents, which would translate into a grossed-up dividend yield of 14.4%. To get a dividend yield of 10%, excluding the franking credits, would be a very large return.
Can Adairs shares achieve growth?
That's the key question for 2023 and the medium term. The Reserve Bank of Australia (RBA) continues to crank up the interest rate, which is aimed at dampening consumer spending so that inflation is reduced.
For interest rates to fall again, economic conditions have to cool down.
But I think that while Adairs' per-store profit may be hit this year, I like the company's plans that it has to grow the business.
The ASX dividend share is upsizing stores (larger stores are more profitable). It's planning additional stores for Adairs and its Focus on Furniture brand while Mocka (its online-only furniture business) will start selling furniture in stores (which could unlock great synergies with Focus on Furniture). It's also working on improving efficiencies.
For dividend income alone, this company could be one to watch.
