ASX dividend shares can be a helpful way to generate a high level of income from investor capital.
Sometimes a valuation is low enough to boost the yield significantly.
Future Generation Investment Company Ltd (ASX: FGX)
Future Generation is one of the most interesting listed investment companies (LICs) on the ASX in my opinion.
There are no management fees or performance fees involved. Instead, the fund managers involved all work for free. That’s because Future Generation donates 1% of its net assets each year to youth-related charities. Hence the name of the LIC.
The LIC is invested in many funds of the best fund managers in Australia. That means that there is plenty of underlying diversification and hopefully good performance.
Some of the fund managers the ASX dividend share is invested in includes Bennelong, Paradice, Regal, Eley Griffiths, L1 Capital and Wilson Asset Management.
Since inception of Future Generation in September 2014, its gross portfolio return has been 2.1% better per year than the S&P/ASX All Ordinaries Accumulation Index.
Why does it count as a good ASDX dividend share? It has grown its dividend each year since it started paying one several years ago.
It currently offers a fully franked dividend yield of 3.75%.
Adairs Ltd (ASX: ADH)
Adairs is one of the larger retailers on the ASX. It sells a variety of things like bedding and homewares.
It has done an excellent job of capturing the strong demand for home improvement products over the last 12 to 15 months. One of the key ways it has captured that is with excellent online growth. Profit growth has been helped by good gross margin improvement.
That’s how, in the HY21 result, the ASX dividend share was able to achieve a 166% increase in underlying EBIT (EBIT explained) and 233.4% growth of net profit.
Retailers are often priced at a lower earnings multiple compared to many other industries, the yield is quite high. That helps make the dividend yield higher.
After a booming year of sales, Adairs is expected to pay a dividend of 25.8 cents per share according to CommSec numbers. That puts the forward fully franked dividend yield at 5.4%. CommSec numbers put the Adairs share price at 11 times the estimated earnings for the 2021 financial year.
