The 2023 hunt for income is already underway and the current landscape might position ASX dividend shares as the frontrunner this year.

Last week, Australians were informed that inflation had rebounded to a 7.3% year-on-year increase. Yet, returns on cash in the bank with the big four are sitting between 3.25% to 3.75%. In other words, cash is producing a negative real return.

Even if the Reserve Bank of Australia lifts rates again next month, cash won’t yield a positive real return until inflation is near the target range. That’s why I would much rather invest my money in fantastic businesses that are creating value for shareholders.

The total dividend yield of the S&P/ASX 200 Index (ASX: XJO) is expected to be 4.4% before franking credits this year, according to Don Hamson of Plato Investment Management. That means an investment in an indexed-based exchange-traded fund (ETF) alone could provide better returns than cash in 2023.

However, there are two ASX dividend shares that I believe could deal out even better dividend yields.

Cash cow to keep mooing

If I was looking to supercharge my passive income this year, it would be hard to pass on Queensland coal producer New Hope Corporation Limited (ASX: NHC). The company is currently trading a monstrous dividend yield of 13.4%.

The exceptionally high yield could be due to an unwillingness among investors to push the share price of this ASX 200 company higher in fear of falling coal prices. Since May last year, the commodity has floated sideways.

I personally find it hard to believe that the energy squeeze will be solved this year. Sanctions on Russian oil will remain in place while the Ukraine invasion persists; new sources of energy supply take time to reach production; and market interventions could amplify the issues.

Additionally, even if coal prices weaken throughout 2023, New Hope holds around $625 million in net cash that it could dip into to fund its payments.

Another ASX 200 dividend share I’d set my sights on

The other individual stock I’d be picking for beefing up my income stream is Smartgroup Corporation Ltd (ASX: SIQ). The provider of various employment packaging solutions has had a rough trot over the past year — shares are down 25%.

Many investors have parted ways with Smartgroup shares after a takeover failed to materialise in 2022 and the company lost one of its top 20 customers. In turn, the dividend yield has been inflated to a tall 12%.

Being realistic, I believe Smartgroup will reduce its dividends this year. My forecast is for dividends per share to decrease by 40% to 60% compared to last year. However, this could still beat the 4.4% yield of the ASX 200.

The attractive proposition in Smartgroup is the potential capital appreciation alongside a respectable income. At the current price-to-earnings (P/E) ratio of 11 times earnings, I’d estimate the potential for 25% growth in the Smartgroup share price to trade more in line with its peers.

The post ASX 200 to yield 4.4% in 2023. These 2 dividend shares pay more than twice that appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Attention income investors! These 7 ASX 200 dividend shares are projecting yields of 7%+ in FY24
• Burning hot: The outlook for ASX 200 energy shares in 2023
• Here are the top 10 ASX 200 shares today
• 6 ASX mining shares just upgraded by brokers

Motley Fool contributor Mitchell Lawler has positions in Smartgroup. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Smartgroup. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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