Big ASX dividend shares like the Commonwealth Bank of Australia (ASX: CBA), for example, typically get a lot of attention. That's why I'm going to tell you about three compelling picks with smaller market capitalisations.
A company can provide a good dividend yield, whether it's worth $100 million or $100 billion.
The dividend yield depends entirely on how much of the profit the business pays (the dividend payout ratio) and its valuation. If the price/earnings (P/E) ratio is higher, then the dividend yield is pushed lower. If the P/E ratio is lower, then the dividend yield is usually higher.
Of course, there's more to an investment than just its dividend yield. I want to show how less popular ASX dividend shares can also be great passive income ideas. So, let's take a look at these three.
Duxton Water Ltd (ASX: D2O)
This company owns water entitlements that can be leased to farmers at various lease lengths. I view this business as an indirect investment in the agricultural sector.
Water prices can go up and down, so we can be tactical when we decide to buy at a point when Duxton Water shares seem to be at a weaker point.
Pleasingly, the company has grown its half-yearly dividend every six months since 2017. It's trading at a discount to its net asset value (NAV) and expects to pay a grossed-up dividend yield of around 7%.
Bailador Technology Investments Ltd (ASX: BTI)
Bailador invests its millions in unlisted technology businesses that have several appealing elements, including a proven business model and international revenue generation.
The idea is that long-term capital growth of the value of the portfolio can help fund dividend payments to shareholders.
The ASX dividend share has committed to a dividend payout ratio of 4% of pre-tax net tangible assets (NTA).
However, the Bailador share price is valued at a discount of almost 30% to the February 2024 pre-tax NTA. That means the cash yield on the share price is 5.6% or 8% grossed-up.
Bapcor Ltd (ASX: BAP)
Bapcor is an auto parts company with several brands that service customers and a variety of other businesses.
It owns brands such as Burson Auto Parts, Precision Automotive Equipment, BNT (NZ), Truckline, WANO, Autobarn, Autopro, Midas, ABS, Shock Shop, and Battery Town.
Bapcor has grown its annual dividend in most years over the past decade, which is quite impressive considering the economic challenges that have occurred during that time. Having said that, the company advised a reduction in its latest dividend payout in the latest half-year results.
The number of vehicles on Australia's roads continues to grow, which helps grow the number of potential customers for Bapcor's various businesses.
According to the estimates on Commsec, the business is projected to pay a grossed-up dividend yield of 4.8% in FY24 and 6.1% in FY26.
