ASX dividend shares could be really good ideas to boost an investor’s investment income.
Yields from fixed interest and property are very low these days.
But ASX dividend shares can offer exciting yields.
However, it’s important to find investments that are also delivering long-term underlying growth.
WAM Microcap Limited (ASX: WMI)
WAM Microcap is a leading listed investment company (LIC). Its job is to find attractively valued small ASX shares and hopefully make some good investment gains from them.
The LIC can then use that profit to pay dividends.
WAM Microcap is making a lot of investment profit and paying pretty big dividends.
Over the last three years the WAM Microcap portfolio has produced an average return per year of 22.5%. That’s before fees, expenses and so on – the stated figure is a gross return, the net return for shareholders is a bit lower.
WAM Microcap expects to pay an annual dividend of 8 cents per share. Including the franking credits within the yield, that equates to 6.1%.
But on top of that, the ASX dividend share has been paying special dividends, boosting the yield further. If the LIC chose to pay a 4 cent special dividend then the total FY21 yield would be 9.2% including franking credits.
It appears to be a strong performer, though it is likely to be very volatile during negative periods for the overall share market.
Adairs Ltd (ASX: ADH)
Retailers are interesting dividend ideas for me. They are often priced with a relatively low price/earnings ratio. This is good news for the dividend yield being relatively high if there’s a decent dividend payout ratio.
For example, using CommSec numbers, Adairs is valued at 12 times the estimated earnings for the 2022 financial year. CommSec also has a forecast of a $0.25 nnnual dividend in FY22. Including the franking credits in the yield, that would equate to a yield of 8.5%.
But I’m interested in Adairs because of more than just the yield.
It has a number of growth initiatives to help boost profit in FY23 and beyond (FY21 may prove to be one-off crazy year for retail).
Adairs hopes to continue to grow its digital sales, which already make up an impressive amount of sales. Mocka, an online-only brand, has a lot of growth potential in Australia if it can capture the same market share in Australia as it has in New Zealand.
The ASX dividend share is working in its supply chain and efficiencies. A new national distribution centre in Melbourne will lead to millions of dollars saved in costs in the coming years.
Opening bigger stores is another strategy that’s working. Adairs can show off more of its products. An upsizing leads to the business making around 60% more profit from that store per year. There are more locations where stores can be added.
I’m not expecting the FY22 dividend to be as big as FY21, but I do think that there is good compound growth potential looking at FY23 and beyond.
