There are a number of ASX dividend shares that I like for their dividend yield potential.
I think plenty of dividend-paying stocks on the ASX are contenders for passive income. But it's important to highlight that we're not just limited to shares like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).
Some other sectors, such as ASX retail shares, can also be very appealing due to their dividend potential and low earnings multiple valuations.
If I were looking to build a diversified portfolio with a range of dividend yields, I'd want to own the three ASX dividend shares below.
Rural Funds Group (ASX: RFF)
Rural Funds is a real estate investment trust (REIT) that owns a variety of farm types including cattle, vineyards, almonds, macadamias and cropping.
The business is benefiting from ongoing rental income growth, with most contracts being linked to either CPI inflation, or having a fixed annual increase.
Higher interest rates have challenged short-term rental profit, but in the long term, the ASX dividend share aims to grow its distribution by 4% per annum.
It's currently yielding close to 6%, and the Rural Funds share price is trading at a discount of around a third to the underlying net asset value (NAV) at 31 December 2023.
Step One Clothing Ltd (ASX: STP)
This company describes itself as a direct-to-consumer online retailer of innerwear which is "high quality, organically grown and certified, sustainable and ethically manufactured".
The business has a growing presence in Australia, the UK and the US. I believe there's plenty of potential to expand into other countries in the future, such as Canada.
This ASX dividend share recently announced a very promising trading update. It's expecting FY24 revenue to be $84 million, which would be a 29% growth compared to FY23.
Step One also said it expects earnings before interest, tax, depreciation and amortisation (EBITDA) to be $17 million, representing growth of 42% year over year. It's pleasing to see profit rise noticeably faster than revenue because it suggests the business can deliver ongoing operating leverage benefits in the coming years as it grows.
According to the forecasts on Commsec, Step One is projected to pay a grossed-up dividend yield of 6.6% in FY25.
Shaver Shop Group Ltd (ASX: SSG)
This company aims to be the market leader in hair removal in Australia and New Zealand. It already has 123 stores across these countries and a presence on various online platforms (such as eBay and Amazon).
It sells a wide range of brands, some of which are exclusive products from suppliers. The company also retails various products in oral care, hair care, massage, air treatment and beauty categories.
No dividend record is guaranteed to continue, but impressively, this ASX dividend share has grown its annual payout every year since 2017.
It currently has a trailing grossed-up dividend yield of 12%. Total sales for the period 1 January 2024 to 22 February 2024 increased by 0.9%, so it's possible there could be another dividend increase. However, even a dividend cut of around 20% in FY24 would lead to a grossed-up dividend yield of around 10%.
