ASX shares are capable of paying investors very appealing levels of passive income thanks to franking credits which boost the grossed-up dividend yield for investors.
In this article, I'm going to look at two businesses which trade on a low price/earnings (P/E) ratio. Both have decent prospects for earnings growth in the coming year ahead and could be on track to pay a large dividend yield.
Dividends aren't guaranteed, but businesses have control over their payments because the board of directors can decide on the level of payout.
So, let's get into the two ASX shares that could pay large dividend yields.
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Adairs Ltd (ASX: ADH)
Adairs is an ASX retail share with three businesses – Adairs, Mocka and Focus on Furniture. It has been exposed to the changes in discretionary spending in Australia amid the high cost of living, but a recent turnaround in sales performance and a projection of higher dividends makes this business an interesting option for income lovers.
According to a projection from UBS, Adairs could pay an annual dividend per share of 16 cents. At the current Adairs share price, that equates to a grossed-up dividend yield of 10.5%.
The FY25 half-year result was positive under the circumstances, with total sales growth of 2.7%, gross profit growth of 3.5%, underlying operating profit (EBIT) growth of 6.7% and statutory earnings per share (EPS) growth of 8.5%. This helped fund dividend growth of 30% to 6.5 cents per share.
Adairs could deliver further profit growth in the medium-term from improved inventory availability and warehouse efficiencies. In the longer-term the company is planning to open more Adairs and Focus on Furniture stores.
GQG Partners Inc (ASX: GQG)
GQG is one of the larger fund managers on the ASX. While its headquarters are in the US, it also has a presence in Canada, the UK, Australia and so on.
The ASX share offers a number of different investment portfolios for clients including US shares, global shares, international non-US shares and emerging market shares. Impressively, GQG has delivered a track record of outperforming the respective benchmarks since inception for each major fund.
While volatile markets are a headwind for funds under management (FUM) (as well as revenue and profit), I think this sort of volatility can open up a buying opportunity for a fund manager like GQG.
The ASX share continues to regularly win new funds to manage from clients, which is helping organically grow its FUM. This is a strong tailwind for earnings and the dividend, in my view.
In FY26, it's predicted to pay an annual dividend that equates to a dividend yield of 11.25%.
