2 ASX dividend shares offering exciting yields over 7%

Income investors might love these two passive income options.

| More on:
Two happy woman looking at a tablet.

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

Key points

  • Some ASX shares are projected to pay very large dividends in the next couple of years
  • Adairs has a very low P/E ratio, enabling it to pay a large dividend yield
  • Nick Scali could also pay a large, but reduced, dividend in FY24

The share market is a great place to find ASX dividend shares that can pay large dividend yields.

Dividends are not guaranteed. However, over a number of years, we can tell that some companies have a stronger commitment to paying dividends to shareholders than others.

I think ASX retail shares can be an effective way to get dividends because they typically have a fairly low price/earnings (P/E) ratio and can have a fairly high dividend payout ratio. This can result in a very good dividend yield.

With that in mind, I'm going to write about two ASX dividend shares that are expected to pay very large dividends over the next two dividends.

Adairs Ltd (ASX: ADH)

Adairs is a retailer of homewares and furniture through three different brands – Adairs, Mocka and Focus on Furniture.

Out of FY23 and FY24, the profit estimate for FY23 is lower, so I will use that projection from Commsec. Adairs shares are valued at just 8 times FY23's estimated earnings and could pay an annual dividend per share of 16.8 cents. This would translate into a grossed-up dividend yield of 11%.

But, if the forecasts on Commsec turn out to be correct, the Adairs earnings and dividend could both grow by around 10% in FY24, which would mean the FY24 grossed-up dividend yield from the ASX dividend share would be 12.5%.

Assuming the Australian economy doesn't go into a painful recession next financial year because of interest rates, Adairs could benefit from having more stores, upgrading a few locations to larger stores (which are more profitable), having more loyalty members and being more efficient with its recently-opened national distribution centre.

Nick Scali Limited (ASX: NCK)

Nick Scali is another furniture retailer with its Nick Scali and Plush-Think Sofas brands after recently acquiring it.

The business sold an elevated amount of furniture during the COVID-19 period, but it could keep paying good dividends over the next couple of years.

Commsec numbers suggest that Nick Scali could generate earnings per share (EPS) of 85.1 cents, which would put the ASX dividend share at under 12 times FY24's estimated earnings.

The grossed-up dividend yield in FY24 would be 7.9%, while the FY23 grossed-up dividend yield is projected to be 10.5%.

Nick Scali may be able to grow its earnings in FY25 and beyond to a few different factors including a store rollout in New Zealand, growth of the Plush network in Australia, a range expansion and growth of online sales. Online sales can be very profitable for Nick Scali.

Motley Fool contributor Tristan Harrison 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 has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

$100 Australian notes on top of each other.
Dividend Investing

These buy-rated ASX dividend stocks offer 7%+ yields

Analysts expect these buy-rated stocks to provide income investors with big yields.

Read more »

Happy man holding Australian dollar notes, representing dividends.
Dividend Investing

3 outstanding ASX dividend shares to buy next week

Analysts are tipping these shares to offer big returns over the next 12 months.

Read more »

A male oil and gas mechanic wearing a white hardhat walks along a steel platform above a series of gas pipes in a gas plant
Dividend Investing

Should I buy Santos shares for dividend income?

Santos shares have been steadily upping their dividends since 2020.

Read more »

A businessman lights up the fifth star in a lineup, indicating positive share price for a top performer
Dividend Investing

2 of the best ASX dividend shares to buy in December

Bell Potter rates these dividend shares very highly. Let's see why.

Read more »

Man holding Australian dollar notes, symbolising dividends.
Dividend Investing

Analysts expect 5% to 8% dividend yields from these ASX stocks

Here's why these dividend stocks could be great options for income investors today.

Read more »

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

5 ASX 200 shares with ex-dividend dates next week

Do you own any of these shares that are primed to pay out?

Read more »

A couple makes silly chip moustache faces and take a selfie on their phone.
Dividend Investing

Invested $5,000 in Telstra shares in 2021? Here's how much passive income you've already earned

Atop the share price gains, how much passive income have investors earned from their Telstra stock?

Read more »

Happy couple enjoying ice cream in retirement.
Dividend Investing

Buy Telstra and this ASX dividend stock now

Analysts are saying good things about these dividend stocks. Let's see why they are bullish.

Read more »