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.

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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.

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