ASX dividend shares can unlock some good passive income. But, there are a few that have particularly high dividend yields which could be worth knowing about.
Businesses that have a low price/earnings (P/E) ratio and/or have a particularly high dividend payout ratio can have a large dividend yield.
Investors should ensure that if they're going for a dividend yield, the underlying business has a good future and the valuation makes sense. The following two names could pay large yields in FY23 and beyond.
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Adairs Ltd (ASX: ADH)
Adairs is a business that sells furniture and homewares through three different brands – Adairs, Mocka and Focus on Furniture.
The business is expected to pay a very large dividend yield in FY23. Estimates on Commsec suggest that the ASX dividend share could pay an annual dividend per share of 16.8 cents in FY23 and 19 cents per share in FY24. This could mean the grossed-up dividend yield for FY23 may be 10.6% and the FY24 grossed-up dividend yield might be 12%.
This business has seen plenty of volatility over the past two years. But, after dropping around 50% since June 2021, the business is now on a very low valuation in terms of its P/E ratio.
It might generate 27.2 cents of earnings per share (EPS) in FY23 and then 30 cents of EPS in FY24, according to Commsec. These forecasts put the Adairs share price at 8 times FY23's estimated earnings and under 8 times FY24's estimated earnings.
The ASX dividend share is aiming to grow its profit through opening new stores, upsizing some stores to bigger locations (which are more profitable), growing its loyalty member base and increasing its online sales.
Pacific Current Group Ltd (ASX: PAC)
Pacific Current describes itself as a multi-boutique asset management business. It uses its strategic resources, including capital, institutional distribution capabilities and operational expertise to help its partners excel.
In other words, it invests in fund managers around the world to help them grow. One success story has been GQG Partners Inc (ASX: GQG) which grew into one of the biggest fund managers on the ASX. Some of the fund managers that it's invested in include Aether, Banner Oak, Carlisle, Proterra and Victory Park.
Pacific Current has grown its dividend each year since 2018 and dividends are expected to keep rising for the years to come, according to Commsec. The FY23 dividends per share could be 41 cents and 46.5 cents per share in FY24.
These estimates suggest that the ASX dividend share could pay a grossed-up dividend yield of 8.1% in FY23 and 9.2% in FY24.
The underlying fund managers are seeing growth of funds under management (FUM), which can then help revenue, earnings and the dividend. In the three months to 31 March 2023, aggregate FUM grew 6.9% in Australian dollar terms. It continues to make the occasional investment into another fund manager, opening up another avenue of growth for the business.
Assuming asset markets keep growing over the long term, as they have in the past, this is a useful organic boost for the ASX dividend share's ability to make a profit and pay dividends.
