ASX dividend shares offer some fantastic opportunities to build a passive income.
For many of those stocks, that opportunity has already been factored into the share price.
But the market is an imperfect place. Which is something we can take advantage of.
What I mean is that some ASX dividend shares will, over time, prove to be overvalued at today's levels. These are the ones we want to try to avoid.
On the flip side, we aim to target those passive income-generating stocks that look to be going cheap right now.
Now do take note that the yields you generally see posted, and those we discuss below, are trailing yields. Future yields may be higher or lower, depending on a range of company-specific and macroeconomic factors.
With that said…
ASX dividend share in early recovery mode
The first ASX dividend share I think is going cheap right now is Adairs Ltd (ASX: ADH).
Adairs is a leading home furnishings specialist retail stock. It has three store brands – Adairs, Mocka and Focus on Furniture – with more than 170 stores in Australia and New Zealand.
As you can see on the chart above, the Adairs share price is down 25% in 2023.
Sales have come under pressure as consumers, feeling the pinch of high interest rates and inflation, have cut back on discretionary spending, like furniture.
The ASX dividend share saw a steep sell-off in early June after reporting a sharp year-on-year decline in trading conditions across its three store brands.
Now have a closer look at the chart. You can see the stock began to rebound on 26 June.
In fact, the Adairs share price is up 27% since then. And with the Reserve Bank of Australia (RBA) looking to be very close to the end of this rate hike cycle as inflation cools down, Adairs shares could continue to receive some tailwinds as consumer discretionary spending recovers.
With that said, the ASX dividend share is still trading 25% below where it started the calendar year. And with the passive income it's been paying, that makes this one cheap in my book.
Adairs paid a fully franked interim dividend of 10 cents per share on 23 September. The company paid a final dividend of 8 cents per share on 6 April. That's a full-year payout of 18 cents per share.
At the current share price of $1.67, that works out to a fully franked trailing yield of 10.8%.
Also looking like a passive income bargain to me
The second ASX dividend share I think is going cheap right now is Yancoal Australia Ltd (ASX: YAL), which commands a $6.7 billion market cap.
Shares in the coal stock are down 12% in 2023 as coal prices have come off the boil from their 2022 all-time highs.
But, as with Adairs, you can see in the above chart that the Yancoal share price has surged 16% since 23 June. And I believe that trend is also likely to continue, with global coal demand remaining strong amid limited new supplies in the pipeline.
This cheap ASX dividend share has been an absolute money machine of late.
At its full 2022 calendar year results, Yancoal reported a profit before tax of $5.1 billion, up from $1.1 billion in 2021.
In its results for the quarter ending 30 June, the coal miner reported a $700 million increase in its cash holdings. Yancoal had a whopping $1.1 billion cash balance at 30 June.
And this came despite management stating that over the three-month period, coal market conditions "deteriorated as seasonal factors tipped the supply-demand balance in favour of coal buyers".
With the share price still down 12% in 2023, this ASX dividend share trades at a rock bottom price to earnings (P/E) ratio of about 1.9 times. And its recent passive income record is through the roof.
The ASX coal miner paid an interim dividend of 52.7 cents per share on 20 September, unfranked. Yancoal paid a final, fully franked dividend of 70 cents per share on 28 March.
That's $1.227 per share in passive income over the 12 months, partly franked.
At the current share price of $5.09, this ASX dividend share trades on an eye-watering trailing yield of 24.1%.
