ASX shares with large dividend yields could be an excellent choice during this period of higher inflation and interest rates.
Yes, savings accounts and bonds are now offering a higher interest rate. But, I don't think interest rates are going to go much higher, so the current lower share prices mean high dividend yields for investors.
I think the following two stocks are some of the best options that passive income investors can buy.
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Future Generation Australia Ltd (ASX: FGX)
Future Generation Australia is a listed investment company (LIC) with a very charitable cause.
It donates 1% of its net assets each year to charities focused on supporting youth.
The ASX share has a portfolio invested in the funds of 16 fund managers, which means a lot of diversification. It invests a lot more in smaller, growing businesses than the S&P/ASX All Ordinaries Accumulation Index (ASX: XAOA) gives weighting to.
Over time, I think smaller businesses can deliver more growth and more compounding than the large ASX blue-chip shares.
Future Generation Australia has been a very good option for reliable dividends during its life. The ASX share has grown its annual dividend per share every year since it started paying dividends in 2015.
In FY26, it expects to hike its annual dividend per share by 5.6% to 7.6 cents. That's a forward grossed-up dividend yield of 8.3%, including franking credits, at the time of writing.
Universal Store Holdings Ltd (ASX: UNI)
The other ASX share I want to highlight is Universal Store, which owns multiple brands focused on providing premium apparel products. Those brands include Universal Store, Perfect Stranger, and CTC (Worship and THRILLS).
Its products are resonating with customers with a strong performance across its two core brands, as well as increasing profitability.
In FY26, group sales rose 12.9% to $376.1 million. Universal Store total sales grew 11.5% to $313.3 million, amid like-for-like sales growth of 8.1%. Perfect Stranger total sales grew 40.8% to $35.9 million, boosted by LFL sales growth of 13%.
The FY26 group gross profit margin rose 140 basis points (1.40%) to 62.5%, underlying operating profit (EBIT) climbed 17.2% to $64 million, and underlying net profit after tax (NPAT) climbed 16.3% to $40.5 million. Each of those margins improved, which comes after a number of years of improvement.
The above profit growth helped it hike its annual dividend per share by 11.7% to 43 cents.
It seems like all the company needs to keep doing is producing good clothing and rolling out more stores for success.
In the first seven weeks of FY27, direct-to-customer sales were up another 9.1%, with Universal Store sales growth of 5.5% and Perfect Stranger sales growth of 45.8%.
Management intends to open another 16 to 20 stores in FY27, which could help drive its financials further.
According to the projection on CommSec, the company could grow its dividend to 45 cents per share. That means it's trading with a potential grossed-up dividend yield of 8.6%, including franking credits, at the time of writing.
Impressively, the Universal Store dividend has grown each year since it started paying a dividend in 2021.
