3 ASX dividend shares I think are incredibly cheap right now

These dividend shares could offer good passive income opportunities that pay off in the long term.

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Key points

  • Shaver Shop could pay a huge grossed-up dividend yield of 15% in FY25
  • Adairs could see a rebound of its earnings and dividend by FY25, leading to a grossed-up dividend yield of 13%
  • Water entitlement business Duxton Water keeps growing its dividend for shareholders

ASX dividend shares can provide investors with attractive returns if they are able to generate a combination of dividends and capital growth. Buying into these opportunities when they're cheap gives us an opportunity to achieve a bigger dividend yield and more chance of positive share price returns.

For example, if there's a business with a 5% dividend yield and the share price falls by 10%, then the dividend yield becomes 5.5%. All things being equal, the business would also be 10% better value than before.

With all of the current worries about the economy amid high interest rates and painful inflation, the retail sector could be an attractive place to find longer-term ASX dividend share opportunities. The consumer discretionary retail sector is where two of my suggestions come from.

Shaver Shop Group Ltd (ASX: SSG)

Shaver Shop aims to be the leading retailer of hair removal and grooming products in Australia. It has over 120 stores across Australia and New Zealand. It also sells some products across oral care, hair care, massage, air treatment and beauty categories.

The business advised that in the first six weeks of the second half of FY23, its gross profit margins had remained well above long-term averages and above the prior corresponding period in 2022.

Since 9 February 2023, the Shaver Shop share price is down 13%. I think this decline, combined with the low forward price/earnings (p/e) ratio, makes it look cheap. According to Commsec, the ASX dividend share is valued at just 8x FY25's estimated profit and, in that year, could pay a grossed-up dividend yield of 14.75%.

The company has stated its intention to keep increasing the dividend to shareholders.

Adairs Ltd (ASX: ADH)

Adairs is a retailer of homewares and furniture across its Adairs, Mocka and Focus on Furniture brands.

In the last year, the Adairs share price has fallen around 32%, and it's down approximately 65% since June 2021.

The ASX dividend share has seen gone through some bad falls before, but I think its long-term expansion plans will help it perform.

It wants to grow the Focus on Furniture network number while moving some Adairs store locations to larger footprints, which tend to be much more profitable than smaller stores.

I don't think the retail outlook will look this gloomy forever, so today's depressed Adairs share price could prove to be a long-term investment opportunity.

Based on Commsec estimates, it's valued at 7x FY25 estimated earnings, with a potential grossed-up dividend yield of 13% in the 2025 financial year.

Duxton Water Ltd (ASX: D2O)

Duxton Water is a company that owns water entitlements and leases them to farmers on either short-term or long-term contracts.

With the weather changing to an El Nino event, conditions could change to a place where water values increase.

Duxton Water can benefit from the lease income, which is helping fund growing dividends to shareholders. It has grown its dividend every six months since 2017, and it's expecting to grow the dividends for the next three half-year results as well.

At the end of June 2023, it had a pre-tax net asset value (NAV) of $2.06 and a post-tax NAV of $1.80. At the current Duxton Water share price of $1.51, that's a discount of 27% and 16%, respectively.

The next 12 months could amount to a grossed-up dividend yield of 6.7%.

Motley Fool contributor Tristan Harrison has positions in Duxton Water. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Adairs. The Motley Fool Australia has positions in and has recommended Adairs. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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