You don't always have to pick a winner with ASX dividend shares. Here's why

Certain ASX dividend shares that have seen a retrace in their share prices could offer superior passive income streams over the years ahead.

| More on:
a group of people excitedly cheering at a horse race

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors hunting for ASX dividend shares to boost their passive income will often start their search with the so-called winners.

These are stocks that have seen their share prices rise over the past year. The so-called losers, then, are stocks whose share prices have come down.

Now, it's basic human nature to want to own a company that's recently been charging higher. One of the winners.

Here's why that won't always achieve the desired passive income results from ASX dividend shares.

Invest in a losing ASX dividend share?

Investors will find that starting their search with stocks that have undergone a significant recent retrace could result in significantly higher sustainable income streams over the years ahead.

This doesn't mean you should invest in any ASX dividend share that's been falling.

There are some basic screens you can run first.

Starting with the company's track record of paying dividends.

Ideally, you want to look for a stock that's been making regular dividend payments for at least 10 years. And even better, fully franked dividends. That way, you might be able to hold onto more of that passive income when it's time to shell out some of your earnings with the ATO.

Also, look for stocks that have historically high yields.

And, rather than aiming to trade in and out of ASX dividend shares, try to invest in companies you'd like to own for a long time.

As Warren Buffett once quipped, "Our favourite holding period is forever."

One example I recently ran my slide rule over is Aussie home furnishing specialist Adairs Ltd (ASX: ADH).

The Adairs share price is down 26% in 2023. The stock has come under pressure as consumers, battling cost of living issues, have cut back on their discretionary spending.

But I believe this ASX dividend share should rebound as these cost of living issues reduce.

Indeed, the stock has gained 27% since 26 June as investors eye the end to interest rate hikes amid falling inflation. That should see consumer interest in buying home furnishings pick back up.

Over the past 12 months the company paid out 18 cents per share in fully franked dividends. At the current share price of $1.69, that equates to a trailing yield of 10.7%.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. 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.

More on Dividend Investing

Accountant woman counting an Australian money and using calculator for calculating dividend yield.
Technology Shares

Which ASX 200 technology stock will pay the best dividend yield in 2025?

Earnings season is underway and dividend announcements are on investors' minds.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Dividend Investing

3 excellent ASX dividend shares to buy next week

Income investors may want to check out these shares that have been rated as buys by analysts.

Read more »

Happy young woman saving money in a piggy bank.
Dividend Investing

1 fantastic ASX dividend stock down 25% to buy now

One leading broker thinks that this beaten down dividend stock is a buy.

Read more »

Three women dance and splash about in the shallow water of a beautiful beach on a sunny day.
Dividend Investing

18 ASX 200 shares set to pay 5%-plus dividend yields in 2025

With some banks offering 5% risk-free yields on term deposits, investors are on the lookout for ASX dividend shares that…

Read more »

A couple sits in their lounge room with a large piggy bank on the coffee table. They smile while the male partner feeds some money into the slot while the female partner looks on with an iPad style device in her hands as though they are budgeting.
Dividend Investing

2 reasons I'm buying ASX income shares instead of investing in term deposits

Income stocks look like the right pick to me.

Read more »

Two women happily smiling and working on their computers in an office
Dividend Investing

Which ASX 200 communications share will pay the best dividend yield in 2025?

Several communications stocks are expected to pay dividend yields above the ASX 200 Index average of 4%.

Read more »

Man holding Australian dollar notes, symbolising dividends.
Dividend Investing

Why these ASX dividend shares could be buys for income investors

Analysts are tipping these shares as buys for income seekers. Let's see what they are forecasting.

Read more »

A businessman lights up the fifth star in a lineup, indicating positive share price for a top performer
Dividend Investing

Bell Potter names 2 of the best ASX dividend stocks to buy

Let's find out why the broker is feeling bullish on these names.

Read more »