One unloved ASX income stock I'm buying, with an 11% dividend yield

You're most likely familiar with this beaten-down ASX income stock. You may even have shopped in one of the company's many stores.

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There's a beaten-down ASX income stock I've had my eye on.

I don't own it yet.

But it's at the top end of my watchlist to deliver some handy extra passive income.

You're most likely familiar with the company. You may even have shopped in one of their 170-plus stores across Australia and New Zealand.

The currently unloved ASX income stock in question is Aussie home furnishing specialist Adairs Ltd (ASX: ADH). Its store brands encompass Adairs, Focus on Furniture, and online shop Mocka.

What's been happening with this ASX income stock?

As you can see on the chart below, it's been a difficult year for the home furnishing retailer.

Shares are down 1.35% in intraday trading today at $1.682 apiece. That puts the Adairs share price down a painful 34% over the past 12 months.

The ASX income stock has come under pressure as consumers, dealing with high inflation and rocketing interest rates, have cut back on their discretionary spending.

In early June, the company reported a sharp reversal in the 34.1% sales growth it achieved in the first half of the financial year.

Adairs said second-half sales were down 3.4% year on year for its Adairs business; down 10.9% for its Focus on Furniture segment; and down 23.8% for its Mocka online stores.

The Adairs share price fell 14.9% on the day of that announcement.

So, why I am eyeing this ASX income stock?

Why Adairs shares are at the top of my watchlist

I believe most of the damage to the Adairs share price has been done.

That's not to say it can't slide further from here.

But I reckon the market has priced in most of the declining store sales.

While higher interest rates will continue to bite for some time, inflation is coming off the boil. And it's looking increasingly likely that we're at the end, or very near the end, of any further rate hikes from the Reserve Bank of Australia (RBA).

That should see consumer interest in buying home furnishings rebound. Perhaps not this year. But at the currently depressed share price, I believe this unloved ASX income stock represents good long-term value.

As for that passive income, Adairs paid two fully franked dividends over the past 12 months, for a full-year payout of 18 cents per share.

At the current share price that equates to a trailing yield of 10.7%, with potential tax benefits.

And in a promising trend, there's been a marked turnaround in investor interest over the past six weeks.

Since 26 June, the Adairs share price has leapt 27.3%.

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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