Cheap ASX dividend shares are a good source of passive income. People who are about to retire might like a boost to their portfolio's dividend yield.
Ideally, good income ideas should be ones that pay an appealing yield and can deliver growth of the dividend/share price over time to account for inflation and deliver pleasing total returns.
The positive difference a good dividend yield can make may be a huge addition to how much cash flow a retiree receives.
For example, if someone has a $750,000 portfolio that yields 4%, that would generate $30,000 of annual income. If the portfolio had a 6% dividend yield, that would result in $45,000 of annual income.
What ASX dividend shares are cheap?
I wouldn't suggest buying a share just because it has fallen. A share price that falls can be expensive. I'd want to identify businesses that are facing a shorter-term sell-off and could recover, or are trading at a cheap level to their underlying assets/cash flow generation.
In my mind, sometimes we can find whole sectors that are disliked and undervalued. During 2022, I wrote many times about global/ASX tech shares being undervalued.
A lot of the market has rallied strongly over the past few months, making opportunities harder to find.
But, there are still a few cheap ASX dividend shares that look good value to me.
For starters, there are some ASX retail shares that are seeing some challenging conditions now, but earnings could accelerate in FY25 and FY26. According to Commsec, shoe retailer Accent Group Ltd (ASX: AX1) could pay a grossed-up dividend yield of over 10% and youth apparel business Universal Store Holdings Ltd (ASX: UNI) might pay a grossed-up dividend yield of over 8% in FY26.
Higher interest rates are undoubtedly an issue for real estate investment trusts (REIT) because these commercial property businesses tend to have sizeable debt on their balance sheet.
I'm looking at farmland REIT Rural Funds Group (ASX: RFF) with a current yield of 5.78% and diversified property owner Charter Hall Long WALE REIT (ASX: CLW) with a yield of 7.89% as opportunities in the property sector. Both of them are seeing solid contracted rental income growth.
Brickworks Limited (ASX: BKW) is another ASX dividend share with a significant asset base, including a large property portfolio, though the grossed-up dividend yield is only 3.5%.
Telstra Group Ltd (ASX: TLS) has returned to giving investors dividend increases after a difficult period due to the NBN transition. The company is benefiting from increasing subscriber numbers. It's trading at close to a 52-week low and currently has an annualised grossed-up dividend yield of 7.2%.
Diversification is important, so I think a portfolio of the above ASX dividend shares could be a solid starting point.
