2 cheap ASX dividend shares I'd buy in retirement

I think retirees will love these two dividend stocks.

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An elderly retiree holds her wine glass up while dancing at a party feeling happy about her ASX shares investments especially Brickworks for its dividends

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I've already bought the two cheap ASX dividend shares in this article. They're wonderful picks for passive income in retirement.

The higher interest rate environment is harming some sectors more than others. Within the pain, I think there are a few opportunities on the ASX.

And I'd much rather buy undervalued businesses than, say, the Commonwealth Bank of Australia (ASX: CBA), which, based on its earnings multiple and price-to-book ratio, is one of the most expensive banks in the world.

So, if I were investing in companies because of the dividend yield and value on offer, the below two would be among the names at the top of my buy list.

Metcash Ltd (ASX: MTS)

Metcash is a diversified business with three core segments.

It supplies independent supermarkets around Australia, namely IGAs. The company also supplies independent liquor retailers, including IGA Liquor, Bottle-O, Cellarbrations, and Porters Liquor. The food and liquor divisions can, in my opinion, provide stable earnings because of the largely consistent demand by households.

I'm excited about the company's hardware division, which includes Total Tools, Mitre 10, and Home Timber & Hardware.

Hardware earnings are currently facing headwinds amid the high cost-of-living environment households and builders are in. I think Metcash can return to good earnings growth when economic conditions improve.

I like the company's recent move to buy one of the country's largest frame and truss businesses and a food service business that supplies other businesses, such as restaurants, cafes, hotels, hospitals, and others.

The ASX dividend share has committed to a dividend payout ratio of 70% of underlying net profit after tax (NPAT), which means it can pay a relatively high dividend yield. According to the estimates on Commsec, Metcash could pay a grossed-up dividend yield of 7.7% in FY24.

It looks cheap to me because it's trading at just 13x FY24's estimated earnings, whereas blue-chip peers like Wesfarmers Ltd (ASX: WES) and Coles Group Ltd (ASX: COL) are trading at higher earnings multiples.

Rural Funds Group (ASX: RFF)

Rural Funds is a cheap ASX dividend share, in my opinion, because the farmland real estate investment trust (REIT) is trading at a significant discount to its underlying net asset value (NAV).

According to Rural Funds (and independent property valuers), the business had an adjusted NAV of $3.07 at 31 December 2023. That means the current Rural Funds share price is at a discount of around 34% to the latest disclosed NAV.

The business is seeing its rental income steadily grow thanks to rental indexation built into most of its contracts. Some of those rental increases are linked to inflation, while other contracts have a fixed annual increase.

Rural Funds has grown or maintained its distribution every year for the past decade. In the longer term, it wants to grow its annual distribution by 4% per annum.

The business has good farmland diversification across cattle, almonds, macadamias, vineyards and cropping. Diversification is useful as a form of protection against risk, so not all the eggs are in one basket. Being open to investing in multiple farming sectors gives the business more opportunities.

Its trailing distribution yield is 5.8%, which I believe is a solid starting yield for this cheap ASX dividend share.

Motley Fool contributor Tristan Harrison has positions in Metcash and Rural Funds Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Wesfarmers. The Motley Fool Australia has positions in and has recommended Coles Group, Rural Funds Group, and Wesfarmers. The Motley Fool Australia has recommended Metcash. 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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