I think ASX dividend shares are a great way to boost income from an investment portfolio. If I were given $5,000, I know where I’d invest it.
But which ones? There are plenty of names to choose from. Just because a business pays a dividend doesn’t mean that it’s automatically a good choice to invest in for income.
I’m looking for businesses that seemingly have a good yield today, have the potential to keep growing the dividend and can grow their underlying value/earnings.
These are two that I could be good options for the long-term:
WAM Microcap Limited (ASX: WMI)
This is a leading listed investment company (LIC) that looks to invest in very promising small and microcap businesses on the ASX, typically that are smaller than $300 million in size.
LICs can pay for their dividends to shareholders by making investment returns.
WAM Microcap’s investment team has been very good at picking the right shares since it started, helping fund the ASX dividend share’s payouts.
Over the last three years its portfolio has made an average of 22.5% per year, before fees, expenses and taxes. It has been paying a growing ordinary dividend as well as large special dividends, whilst leaving enough profit for the net tangible assets (NTA – the underlying value) to continue to grow.
I prefer to buy WAM Microcap shares during volatility/declines, but the current fully franked dividend yield of 4.4% looks good to me for a small starting buy. That yield assumes no special dividends.
Adairs Ltd (ASX: ADH)
Adairs is one of the ASX shares that has benefited from some of the knock-on effects of COVID-19. It has a large and growing amount of digital sales. Adairs is also benefiting from people spending money on their homes rather than travel or other discretionary spending.
The ASX dividend share saw a lot of growth in the first half of FY21. Group sales grew 34.8%, with group online sales rising 163.2% to $90.2 million, representing 37% of group sales.
Margins also soared at all levels of the business. The gross profit margin increased 545 basis points (5.45%), underlying EBIT (EBIT explained) grew 166% to $60.2 million and profit/earnings per share (EPS) went up 227.3% to 25.9 cents.
Adairs plans to continue winning more customers online (particularly with Mocka), upsizing its stores and utilising a new national distribution centre in Melbourne.
In the first seven weeks of the second half of FY21, total sales went up 25% and the gross margin remained elevated.
According to the numbers on CommSec, Adairs is expected to pay a fully franked dividend yield of 6.25% in FY22.
