ASX shares with large dividend yields could be an excellent choice during this period of higher inflation and interest rates.

Yes, savings accounts and bonds are now offering a higher interest rate. But, I don’t think interest rates are going to go much higher, so the current lower share prices mean high dividend yields for investors.

I think the following two stocks are some of the best options that passive income investors can buy.

Future Generation Australia Ltd (ASX: FGX)

Future Generation Australia is a listed investment company (LIC) with a very charitable cause.

It donates 1% of its net assets each year to charities focused on supporting youth.

The ASX share has a portfolio invested in the funds of 16 fund managers, which means a lot of diversification. It invests a lot more in smaller, growing businesses than the S&P/ASX All Ordinaries Accumulation Index (ASX: XAOA) gives weighting to.

Over time, I think smaller businesses can deliver more growth and more compounding than the large ASX blue-chip shares.

Future Generation Australia has been a very good option for reliable dividends during its life. The ASX share has grown its annual dividend per share every year since it started paying dividends in 2015.

In FY26, it expects to hike its annual dividend per share by 5.6% to 7.6 cents. That’s a forward grossed-up dividend yield of 8.3%, including franking credits, at the time of writing.

Universal Store Holdings Ltd (ASX: UNI)

The other ASX share I want to highlight is Universal Store, which owns multiple brands focused on providing premium apparel products. Those brands include Universal Store, Perfect Stranger, and CTC (Worship and THRILLS).

Its products are resonating with customers with a strong performance across its two core brands, as well as increasing profitability.

In FY26, group sales rose 12.9% to $376.1 million. Universal Store total sales grew 11.5% to $313.3 million, amid like-for-like sales growth of 8.1%. Perfect Stranger total sales grew 40.8% to $35.9 million, boosted by LFL sales growth of 13%.

The FY26 group gross profit margin rose 140 basis points (1.40%) to 62.5%, underlying operating profit (EBIT) climbed 17.2% to $64 million, and underlying net profit after tax (NPAT) climbed 16.3% to $40.5 million. Each of those margins improved, which comes after a number of years of improvement.

The above profit growth helped it hike its annual dividend per share by 11.7% to 43 cents.

It seems like all the company needs to keep doing is producing good clothing and rolling out more stores for success.

In the first seven weeks of FY27, direct-to-customer sales were up another 9.1%, with Universal Store sales growth of 5.5% and Perfect Stranger sales growth of 45.8%.

Management intends to open another 16 to 20 stores in FY27, which could help drive its financials further.

According to the projection on CommSec, the company could grow its dividend to 45 cents per share. That means it’s trading with a potential grossed-up dividend yield of 8.6%, including franking credits, at the time of writing.

Impressively, the Universal Store dividend has grown each year since it started paying a dividend in 2021.

The post 2 ASX shares with dividend yields above 8% appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Future Generation Australia. 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 recommended Universal Store. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Another interest rate hike is looking almost certain on Tuesday, but how much more can our economy take?

The Reserve Bank of Australia (RBA) has already lifted rates 3 times this year, and another 2 increases could be on the way.

According to The Australian, HSBC chief economist Paul Bloxham now puts the risk of Australia falling into recession at around 50%.

He expects the cash rate to reach 4.85% by November, which isn’t exactly welcome news for anyone with a mortgage.

With economic growth already slowing, there’s a chance the RBA could go too far with rate hikes and push the economy into recession.

So, what does HSBC see coming?

HSBC sees recession risk climbing

Bloxham expects the RBA to lift the cash rate by 25 basis points tomorrow, taking it from 4.35% to 4.60%.

And while another increase is expected in November, his bigger concern is what those additional rate hikes could do to the economy.

HSBC expects economic growth to come close to stalling around the end of the year, potentially leaving Australia facing a technical recession.

That would mean two consecutive quarters of economic contraction, something we’ve largely managed to avoid outside the COVID-19 pandemic.

And that’s something investors will want to keep an eye on.

Higher borrowing costs and weaker consumer spending could hurt earnings across the ASX, especially among banks and retailers.

Bloxham is also expecting property prices to fall 13% from their peak, which would be the biggest decline in up to 40 years.

That could spell further trouble for housing-related stocks, particularly if fewer people are buying and selling properties.

Not everyone is expecting a recession

Of course, not every economist thinks we’re heading for a recession, with Westpac Banking Corp (ASX: WBC) expecting the economy to keep growing.

Its modelling points to quarterly growth of 0.6%, with investment in data centres expected to help keep things moving.

But Bloxham isn’t convinced that spending will make much of a difference.

He estimates around 85% of the investment involves imported equipment, meaning much of the money could end up going overseas.

For ASX investors, the next few months will be worth watching, particularly as companies start feeling the impact of higher interest rates.

And while a recession isn’t guaranteed, I’d be careful with stocks that depend heavily on people continuing to spend.

What happens next?

Tomorrow’s RBA decision is the next big one to watch, followed by Wednesday’s inflation figures.

All 29 economists surveyed by Bloomberg expect another 25-basis-point hike this week, although they’re not certain about what happens in November.

Nonetheless, the RBA will need to be careful how much further it pushes rates.

The post Australia’s recession risk hits 50% as RBA prepares to lift rates appeared first on The Motley Fool Australia.

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HSBC Holdings is an advertising partner of Motley Fool Money. Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended HSBC Holdings. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Xero Ltd (ASX: XRO) share price has had a terrible time over the past year, dropping by more than 60%, as the chart below shows.

The cloud accounting software provider has lost investor confidence, and its profitability isn’t growing as it used to.

Xero’s latest result was mixed.

Earnings recap

In the 2026 financial year result, meaning the 12 months to 31 March 2026, customers grew 11% to 4.9 million, operating revenue grew 31% to $2.75 billion, operating profit (EBITDA) grew 24% to $790 million, net profit after tax (NPAT) declined 27% to $167 million, and free cash flow rose just 9% to $554 million.

Xero said that Melio-related acquisition costs affected its profitability. While the market may not be totally convinced about Melio, it could be crucial to growth in the US.

Its international markets are growing strongly – that’s countries beyond Australia and New Zealand – international revenue grew 47% to $1.4 billion or 25% on an organic basis excluding Melio. US revenue grew 240%, or 30% on an organic basis excluding Melio. UK revenue grew 26%, with customer growth of 14%.

ANZ continues to see solid growth, with revenue rising 18% to $1.4 billion.

Xero is leaning on price rises to be a significant driver of its financials, which is helping drive a number of revenue metrics. Average revenue per customer grew by 23% to $55.44, annualised monthly recurring revenue (AMRR) soared 37% to $3.27 billion and the total lifetime value (LTV) of customers increased 17% to $21 billion.

The ASX tech share said that it expects operating revenue to be at least $3.6 billion and adjusted EBITDA to be at least $860 million, implying year-over-year growth of at least 30% and 13.6%, respectively.

Is the Xero share price a strong buy?

There are certainly plenty of concerns about what AI could mean for software players like Xero, but its financials continue to show progress, which will likely re-energise the market in the future, in my view.

According to CMC Invest, the business has received three analyst ratings in the past three months.

Of those three analysts, the average price target is $108.53, suggesting a rise of 89% over the next year. Even the most pessimistic of the three analysts has a price target of $85, suggesting a possible rise of 48% over the next year.

Clearly, analysts think the business is undervalued, and the multiple looks reasonable based on free cash flow. If its financials can excite the market again, it could be materially undervalued.

The post How much could the Xero share price rise in the next year? appeared first on The Motley Fool Australia.

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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 Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.