If I were given $5,000 to invest into ASX dividend shares, then I know where I’d want to invest it.
I’d be attracted to ideas where the dividends from those businesses have a good yield and they could also provide potential long-term capital growth. This could create good total returns.
Future Generation Investment Company Ltd (ASX: FGX)
My first pick would be Future Generation, which is a listed investment company (LIC).
But it’s very different to most other LICs that usually have one manager or one management outfit making the investment decisions.
This ASX dividend share is invested in the portfolios of multiple fund managers (rated among the best in the country). Examples include Bennelong, Regal and Paradice. This gives Future Generation excellent underlying diversification.
But these fund managers work for nothing for Future Generation. There are no management fees and no performance fees involved.
Why? Because the fund managers want to help with Future Generation’s goal of supporting youth-related charities. Future Generation donates 1% of its net assets each year to a selection of youth charities.
The lack of fees and solid investment performance has seen the Future Generation’s gross portfolio performance be an average of 11% per year over the last five years. That’s 0.6% per year better than the S&P/ASX All Ordinaries Accumulation Index.
Future Generation can utilise some of the investment gains to pay a steadily-rising dividend to shareholders. That’s one of the things that make it am excellent ASX dividend share candidate.
At the latest Future Generation share price, it has a trailing fully franked dividend yield of 3.6%.
Adairs Ltd (ASX: ADH)
Adairs is one of the leading retailers on the ASX in my opinion.
The retailers that have managed to thrive since the start of COVID-19 are ones to keep an eye on for the future in my opinion.
Online shopping isn’t going away. Indeed, it’s expected to become increasingly prominent. However, I also believe there’s a place for bricks and mortar too.
Adairs seems to be finding the right balance between the mix of online and offline shopping.
It is planning to open bigger stores so that more of its products can be shown off. Adairs says that each time it upsizes a store, that increases the profit of that store by 60%, or $250,000 to $350,000 in dollar terms.
But there’s more to the ASX dividend share potential than just that.
Mocka is one of its brands. It’s an online-only offering for baby, kid and home furniture. Mocka was originally from New Zealand but it’s now growing in Australia as well. It has a strong market share in New Zealand. If it can reach a similar sales-to-population ratio in Australia that could mean a rise in annual Mocka sales from $31.7 million to $111.3 million.
Logistics and supply chains are becoming even more important. Adairs is investing here with a new national distribution centre which is going to be run by DHL. This new distribution centre is going to make things more efficient, improve Adairs’ ability to fulfil online orders and lead to an annual saving of around $3.5 million of costs.
Adairs is on a low price/earnings ratio and is expected to pay a fairly high dividend payout ratio. That combines into a high dividend yield.
Using the numbers on CommSec, the last Adairs share price is valued at 12 times the estimated earnings for the 2022 financial year with a possible fully franked dividend yield of 6.2%.
