2 fallen ASX dividend shares I rate as long-term buys

I'm backing these stocks for a passive income recovery.

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Many ASX dividend shares have seen some volatility over the last couple of years. While some of their pain was just wider market pessimism, some businesses have been facing difficulties.

Inflation and higher interest rates are hurting household demand in some sectors. Indeed, it's understandable shoppers aren't spending as much at retail stores (or online) if their living costs have increased.

Yet, these sorts of economic impacts could create opportunities if earnings lift in a year or two as the negative economic impacts subside. With that in mind, here's why I'm looking at these two passive income stocks as opportunities.

Universal Store Holdings Ltd (ASX: UNI)

Universal Store is an ASX retail share focused on selling premium youth fashion apparel brands through its stores of Universal Store, Perfect Stranger, THRILLS, and Worship.

The Universal Store share price has fallen by more than 50% from November 2021. The great thing about a lower share price is it boosts prospective dividend yield.

Retail conditions are weakening. In the first seven weeks of FY24, Universal stale sales declined by 4.2%, while like-for-like sales were down 8.9%.

Before this slowdown, the ASX dividend share was paying very attractive dividends to investors. I think there's a good chance of rebuilding investor confidence and dividends as its store network grows and shoppers' willingness to spend increases if/when interest rates fall.

According to Commsec, the business could pay a grossed-up dividend yield of 10.3% in FY25. However, keep in mind the board may not declare a dividend as large as what's projected.

Inghams Group Ltd (ASX: ING)

Inghams is one of the largest poultry businesses in Australia. In FY23, it delivered 463.5kt of 'core' poultry volume.

The last year or two has seen Inghams hit by higher costs. These have impacted feed, fuel, freight, ingredients, cooking oil, and repairs and maintenance costs.

Pleasingly, for shareholders, the ASX dividend share said it's focused on ensuring pricing levels "appropriately reflect ongoing business cost pressures and will pass on further price increases as required".

I believe the business can protect and grow its margins if it can keep increasing prices to pass on its cost inflation. FY23 saw underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increase by 13.9% to $433.7 million. Over the same period, underlying net profit after tax (NPAT) jumped 67.7% to $71.1 million.

The FY23 annual dividend per share recovered 107.1% to 14.5 cents per share. At the current Inghams share, that's a grossed-up dividend yield of 6.2%. Commsec estimates suggest the business could pay an annual dividend per share of 18.8 cents in FY25. That would be a grossed-up dividend yield of 8.1%.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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