1 under-$10 ASX dividend stock to buy for monthly passive income

Have you considered this national retailer to provide you with an annual return above 8% just from distributions?

| More on:
A man sleeps in a bed with white sheets while holding a teddy bear and a smile on his face.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There are some amazing dividend yields on offer out of the ASX at the moment.

But many of those stocks are expensive. 

For example, JB Hi-Fi Limited (ASX: JBH) and Rio Tinto Ltd (ASX: RIO) are handing out mouth-watering 7.7% and 8.6% yields at the moment but cost around $45 and $122 per share respectively.

So are there any cheapies out there that could net you a tidy income?

Here's a cheap ASX stock pumping out dividends

Adairs Ltd (ASX: ADH) is a homewares retailer with a $377 million market capitalisation.

The stock is currently paying out an awesome dividend yield of 8.2%.

And the great thing is that investors can grab the shares for under $10. The Adairs stock price closed Wednesday at $2.18, to be down around 3% year to date.

The retailer stock is trading at around a bargain-basement price-to-earnings ratio of 7.7.

Created with Highcharts 11.4.3Adairs PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

At an 8.2% yield, the income from Adairs shares would easily pay for the typical mortgage repayments, which currently hover just around 5% to 6% per annum. 

Then you'd have money left over for a nice holiday, or reinvestment.

Even with just a $50,000 investment, Adairs will provide a tidy $342 of passive income each month. The dividend is 100% franked, so that amount could be even more depending on your tax circumstances.

How reliable is the business though?

The worry with a small cap paying out such handsome payouts might be that it could be a trap. Is the share price or dividend level at risk of collapse?

According to The Motley Fool's Sebastian Bowen, Adairs is "far from" a dividend trap.

"It has recently declared an interim dividend of 8 cents per share, matching last year's payout," he said.

"Adairs just reported sales growth of 34.1% and an increase in net profit after tax of 23.9% to $21.8 million. This indicates its business model is growing healthily, which means the dividends should keep flowing."

Among the professional community, the sentiment is mostly positive on Adairs. 

According to CMC Markets, four out of nine analysts currently rate the stock as a buy, while the rest reckon it's a hold.

The platform also forecasts a dividend yield of 7.3% and 7.6% for each of the coming two years.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Adairs. The Motley Fool Australia has positions in and has recommended Adairs. The Motley Fool Australia has recommended Jb Hi-Fi. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Dividend Investing

Analysts name the best ASX dividend stocks to buy this month

Let's see what they are saying about these income options.

Read more »

Australian dollar notes in the pocket of a man's jeans, symbolising dividends.
Dividend Investing

Buy these ASX dividend shares for 5% to 7% yields

Brokers think these shares could be top picks for passive income investors.

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Dividend Investing

Own ASX A200, NDQ, or ARMR ETFs? It's dividend payday for you!

Betashares will pay distributions to ASX ETF investors today.

Read more »

A young female ASX investor sits at her desk with her fists raised in excitement as she reads about rising ASX share prices on her laptop.
Dividend Investing

Why it's a great day for Vanguard ASX ETF investors!

It's dividend payday for investors in the VAS, VHY, VGS and other Vanguard ETFs today.

Read more »

Male hands holding Australian dollar banknotes, symbolising dividends.
Dividend Investing

This ASX 200 stock has suddenly become the highest-yielder on the index!

This stock currently has a yield of over 10%.

Read more »

Cheerful boyfriend showing mobile phone to girlfriend in dining room. They are spending leisure time together at home and planning their financial future.
Dividend Investing

2 of the best ASX dividend shares to buy for income

Let's see what analysts at Bell Potter are saying about these top income stocks.

Read more »

a woman looks at her phone while making a transaction at the counter of a store where racks of clothing can be seen in the background.
Dividend Investing

Is this hidden gem ASX share a buy for passive income with a 7% yield?

I think this small company offers big potential as a dividend stock.

Read more »

Man holding fifty Australian Dollar banknote in his hands, symbolising dividends, symbolising dividends.
Dividend Investing

The ultimate passive income portfolio using ASX dividend stocks

Here are five stocks that analysts think could be buys for income investors.

Read more »