ASX dividend shares are a great way to create passive income. The value we buy these stocks at can greatly affect the dividend yield we receive.
Take, for example, a business with a 5% dividend yield. If the share price falls 10%, the yield becomes 5.5%, and a new investor gains more income. However, if the share price of that business rises 10%, then new investors buying in would only receive a 4.5% dividend yield.
High interest rates and elevated inflation have been a headwind for valuations in the last few years, particularly in industries that are particularly susceptible to the higher cost of debt, such as real estate investment trusts (REITs) and ASX retail shares.
Australia's interest rate may not fall as early or by as much as some market commentators expect, but I do believe rate cuts may start in 2025 — perhaps in May 2025 or even later in the year.
Lower rates could boost the share prices of the two ASX dividend shares below, so I'd rather buy them sooner rather than later.
Nick Scali Limited (ASX: NCK)
Nick Scali is a very profitable furniture retailer in Australia and New Zealand. I think now is a good time to invest because the Nick Scali share price has fallen 17% since 1 October 2024.
I believe the business is primed to see profit growth in the coming years as the financial situation improves for the Australian consumer. I'm also optimistic about the company's plans to add dozens of Nick Scali and Plush stores across ANZ, greatly increasing its scale.
Nick Scali grew its dividend every year between 2013 and 2023. I think it can grow even higher in the coming years, particularly if it can profitably expand its United Kingdom operations after acquiring Fabb Furniture. The UK market is much bigger than Australia's, thanks to its larger population.
The ASX dividend share paid a dividend of 68 cents per share in FY24, which currently translates into a grossed-up dividend yield of approximately 7%, including franking credits.
Charter Hall Long WALE REIT (ASX: CLW)
This real estate investment trust (REIT) owns a diversified portfolio of properties, including pubs and bottle shops, offices (leased to government entities), telecommunication exchanges, grocery and distribution facilities, food manufacturing, waste and recycling management, Bunnings Warehouse properties and so on.
The ASX dividend share has a focus on defensive industries that are resilient to economic shocks. It also aims to have a long weighted average lease expiry (WALE), which means tenants are signed on for the long term. As of June 2024, it had a WALE of 10.5 years, giving plenty of rental income visibility and security.
The REIT achieved 4.7% like-for-like net property income growth in FY24, which is a solid growth rate and helps support the distribution.
In FY25, it expects to pay a distribution per security of 25 cents, which translates into a distribution yield of 6.3%.
