Dividend yields over 10%! Cheap ASX shares I’d buy for passive income

In my view, a few sectors have been oversold in the last 18 months. That leads me to believe that there are cheap ASX shares, which could also be payers of huge dividend yields. A few could deliver a passive income of more than 10%.

I think the retail sector can be a hunting ground for finding beaten-up opportunities. There are plenty of retailers that are likely to see cyclical demand over the years. If we use periods of market distress to pick up ASX retail shares that are down heavily, they could be among the ones that rebound nicely in the medium term.

Sometimes share prices seem to be heavily focused on the next 12 months or so, not on the longer-term potential. I think this opens up the opportunity to find names that can do well for investors.

Dusk Group Ltd (ASX: DSK)

The ASX share describes itself as a retailer of home fragrance products, selling Dusk-branded products which are designed in-house and exclusive to Dusk. It claims to become the Australian leading retailer of home fragrance products. It sells a number of different products like candles, ultrasonic diffusers, reed diffusers, essential oils and fragrance-related homewares.

Over the past year, the Dusk share price is down around 40%. Commsec numbers suggest that Dusk could generate earnings per share (EPS) of around 20 cents in FY23. This would represent a large profit decrease from FY22. However, it suggests that Dusk shares are currently valued at less than 8 times FY23’s estimated earnings.

On top of that, Dusk had net cash of $32.9 million on its balance sheet at the end of the FY23 first half. According to the ASX, its market capitalisation is currently $93 million, so it looks even cheaper when taking that into account.

In terms of the dividend, it’s expected to be 14 cents per share in FY23 and then rise in FY24 and FY25. At the current Dusk share price, the grossed-up dividend yield could be 13.3%. But that’s just an estimate of the potential passive income.

Ongoing store openings could lessen the effect of any decline in same store sales for the ASX share in FY23 and FY24.

Adairs Ltd (ASX: ADH)

Adairs sells furniture and homewares through its three businesses of Adairs, Mocka and Focus on Furniture. While Mocka is an online-only brand, there are plans to sell its furniture in stores, which would be a useful synergy between its business.

The Adairs share price has fallen over 30% from 1 February 2023, which has boosted the forward dividend yield.

Commsec estimates currently indicate that the FY23 annual dividend per share could be 16.5 cents, with dividend increases expected in FY24 and FY25. The FY23 payout translates into a grossed-up dividend yield of 11.7%. That’s a lot of passive income, even at a lower level.

While there may be uncertainty about household demand, I think Adairs’ plans to upsize its stores and grow the store network of Focus on Furniture will help improve the profitability of the business. So, I believe that Adairs’ earnings can hold up fairly well in this period.

In FY23, the ASX share’s EPS is expected to be 26.8 cents, putting the Adairs share price at under 8 times FY23’s estimated earnings as well.

The post Dividend yields over 10%! Cheap ASX shares I’d buy for passive income appeared first on The Motley Fool Australia.

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More reading

• I hope to retire rich. That’s why I’m buying cheap ASX dividend shares right now
• Here’s one hot, one lukewarm and one cold ASX share: fundie
• I’d target just a handful of ASX shares to aim for a million!
• Why Adairs, Liontown, Qantas, and Synlait shares are dropping today
• Is it a trap? 3 ASX shares with ultra-high dividend yields

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 Australia has recommended Dusk Group. 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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