The investment world has completely changed over the past year with interest rates in the US and Australia now much higher than before. In turn, term deposits are offering much better rates. But, ASX dividend shares can offer much bigger dividend yields.
While it's pleasing that safe assets, like term deposits and high-interest savings accounts, do offer stronger returns, they don't offer the potential for self-funded growth.
But, when an ASX dividend share has a high dividend payout ratio and/or a low price/earnings (P/E) ratio, it can end up in a very big dividend yield.
We're almost three-quarters of the way through FY23, so I'm going to focus on what the dividend yields might be in FY24, which includes current expectations of any economic slowdown.
According to Canstar, the best rate of offer from a 12-month term deposit is 4.5%. So let's check the returns on the following shares:
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Shaver Shop Group Ltd (ASX: SSG)
Shaver Shop is one of the leaders in retail products related to hair removal. It has a national network across Australia, as well as a growing presence in New Zealand. Shaver Shop also sells items like oral care, grooming products, and so on.
The business trades on a low price-to-earnings (P/E) ratio, enabling the share to have a very high dividend yield.
According to Commsec, the business is expected to pay a dividend per share of 10.7 cents in FY24.
At the current Shaver Shop share price, that translates into a grossed-up dividend yield of 13.9%, with further growth expected in FY25.
JB Hi-Fi Limited (ASX: JBH)
JB Hi-Fi is one of the largest retailers in Australia with its national networks of JB Hi-Fi stores as well as its network of The Good Guys stores. While the business sells items such as TVs, it also sells products that many households may view as essential such as fridges, phones, and computers.
During the COVID-19 period, and even in the first half of FY23, the ASX dividend share sold elevated levels of items to consumers as spending was redirected.
That's why the JB Hi-Fi dividend is expected to drop by almost 25% to around $2.28 per share in FY24, according to Commsec.
At the current JB Hi-Fi share price, that translates into a grossed-up dividend yield of 7.5%.
Adairs Ltd (ASX: ADH)
Adairs is a furniture and homewares retailer. It sells through three different brands – Adairs, Focus on Furniture, and Mocka. The business is trying to grow through a combination of a store rollout, membership growth, larger stores, and improved efficiencies.
The ASX dividend share is another that saw a big earnings boost during the COVID-19 period.
In FY24, its dividend is predicted to be 19 cents per share, according to Commsec.
At the current Adairs share price, that works out to be a grossed-up dividend yield of 11.7%. As well, further dividend growth is expected in FY25.
