Investing in ASX shares for passive income?

You may want to run your slide rule over the Betashares Australian Dividend Harvester Fund (ASX: HVST).

Here’s why.

High-yielding ASX share with instant diversification

As with most exchange-traded funds (ETFs), HVST provides investors diverse exposure with a single investment.

The ETF holds 40 to 60 different ASX shares at any given time.

Betashares Australian Dividend Harvester Fund’s top holdings by sector are in the financials sector (30%), the materials sector (24%) and healthcare (10%).

As at 28 February, its two biggest ASX shareholdings were BHP Group Ltd (ASX: BHP) at 12.5% and CSL Ltd (ASX: CSL) at 7.2%.

The ETF’s stated goal is to offer investors mostly franked, passive income that beats the net income yield of the broader ASX.

The portfolio is rebalanced every three months, aiming to provide the highest gross yield outcome. That’s part of what investors get for the 0.73% management fee.

And while most ASX dividend shares only make one or two payouts per year, HSVT makes its distributions every month.

That’s a welcome feature for investors looking to secure a regular monthly passive income stream.

As are the bank-busting yields.

The ETF’s 12-month distribution yield works out to 6.9%. The fund’s gross distribution yield over the 12 months was 9.6%, at an average franking level of 91.6%.

That’s a long way ahead of the higher end term deposit rates of around 4.5% currently. Though, investing in any ASX share, even a diversified ETF, does come with significantly more risk than putting your money in a term deposit.

HSVT’s most recent monthly dividend of 7.1 cents per share was paid on 16 March, franked at 78%.

When the time comes to sell the ETF, investors may gain or lose money on the share price moves, just as with any ASX shares.

As you can see in the chart below, the HSVT share price is down 1% in 2023, roughly in line with the S&P/ASX 200 Index (ASX: XJO).

The post Looking for monthly passive income from ASX shares? This ETF offers bank-busting yields appeared first on The Motley Fool Australia.

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More reading

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Motley Fool contributor Bernd Struben 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 CSL. 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.

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At its core, deep value takes value investing to the extreme. The goal is to find investments — such as those among ASX shares — that are priced significantly below their intrinsic value.

Locating these diamonds in the rough is what helped the late Ben Graham (Warren Buffett’s mentor) achieve 17% annualised returns over more than 20 years.

In order to discover these deep-value companies, Graham would search for businesses trading at valuation multiples that were considered low. For example, companies with a price-to-earnings (P/E) ratio below 10 or a price-to-book (P/B) ratio below 1.

Curious to find some deep value on the local boards, I dug up three ASX shares that I’d consider extremely cheap right now.

Deeply discounted dividend-paying ASX shares

Adairs Ltd (ASX: ADH)

At a P/E of 7.1 times earnings, Adairs is a homewares and furnishings retailer that I believe is trading far below its intrinsic value.

At present, much of the retail sector is being cheaply valued due to the expected impacts on discretionary spending amid higher interest rates. However, it is unlikely that these suppressed multiples will last forever.

Adairs posted a 34% increase in sales for the first half of FY23. I believe Adairs can grow its sales at a 5% per annum clip over the next five years (at minimum) and maintain a net income margin of roughly 7% — which seems like little to ask.

Based on these figures and an improved P/E ratio of 12 times earnings, I estimate the market capitalisation to be in the ballpark of $690 million. That would be approximately double today’s market valuation.

Nick Scali Limited (ASX: NCK)

Much like Adairs, Nick Scali is another furniture retailer that is trading on a lower earnings multiple than its peers. This might lead investors to think that Nick Scali is a lesser company than others, but the numbers definitely don’t paint that picture.

In the first half, the sofa seller posted sales growth of 57.4% compared to the prior corresponding period. Furthermore, the group’s gross margins improved slightly to a magnificent 62%. It’s hard to think of Nick Scali as anything other than one of the best ASX retail shares on the market at the moment.

Going forward, I’m expecting sales growth to temper as the property market cools off. Though, if similar earnings can be sustained over the next five years, I’d personally estimate Nick Scali’s intrinsic value to be around $14.80 per share — 69% above its current valuation.

Macmahon Holdings Ltd (ASX: MAH)

Trading on a P/E ratio of 6 times earnings and a P/B of 0.5, this ASX share is possibly the deepest value on this list. Macmahon Holdings provides mining services to a diverse pool of clients across the world, including Newcrest Mining Ltd (ASX: NCM) and St Barbara Ltd (ASX: SBM).

The steep discount could be attributed to the cyclic nature of the mining industry. No one wants to be an investor when the boom is over. Though, Macmahon is involved in several mining contracts for copper and lithium — which are expected to enjoy prolonged demand due to the electrification trend.

As of 31 December 2022, the company had an order book of $5.6 billion and guided for $1.85 billion to $1.95 billion in revenue for FY23.

My conservative estimate for Macmahon’s valuation in five years would be around $540 million if it were to trade more in line with the industry average P/E ratio of 9 times. This would represent a 90% increase from the current valuation.

The post In search of deep value? I think these 3 ASX dividend shares could be a downright steal appeared first on The Motley Fool Australia.

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More reading

• Dividend yields over 10%! Cheap ASX shares I’d buy for passive income
• This ASX dividend share is projected to pay a yield of over 9% by 2025
• I hope to retire rich. That’s why I’m buying cheap ASX dividend shares right now
• I’d target just a handful of ASX shares to aim for a million!
• Why Adairs, Liontown, Qantas, and Synlait shares are dropping today

Motley Fool contributor Mitchell Lawler 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 has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re looking for a passive income boost, then you may want to check out the ASX dividend shares listed below.

Analysts have named these ASX shares as buys and tipped them to pay their shareholders bigger than average dividends in the near term. Here’s what you need to know:

Charter Hall Long WALE REIT (ASX: CLW)

The first high yield ASX dividend share to consider is the Charter Hall Long Wale REIT.

This property company has a focus on assets with long weighted average lease expiries (WALE). In fact, at the last count, it had a WALE of approximately 12 years. Combined with its 99.9% occupancy rate, this bodes well for the future.

Citi is a fan of the company due to its low risk income stream, long leases, high occupancy rate, and inflation-linked rental increases.

The broker expects this to support dividends per share of 28 cents in FY 2023 and 29 cents in FY 2024. Based on the current Charter Hall Long Wale REIT share price of $4.22, this will mean yields of 6.6% and 6.7%, respectively.

Citi has a buy rating and $5.00 price target on its shares.

Healthco Healthcare and Wellness REIT (ASX: HCW)

Another high yield ASX dividend share for passive income seekers to look at is the Healthco Healthcare and Wellness REIT.

As you might have guessed from its name, it is a real estate investment trust (REIT) with a focus on health and wellness properties. This includes properties such as hospitals, aged care, childcare, government, life sciences and research, and primary care and wellness properties.

Morgans is positive on the company and is forecasting big returns and attractive dividend yields from its shares.

For example, the broker is expecting dividends per share of 7.5 cents in FY 2023 and 7.8 cents FY 2024. Based on the current Healthco Healthcare and Wellness REIT unit price of $1.43, this will mean yields of 5.2% and 5.45% for investors.

Morgans has an add rating and $2.06 price target on its shares.

The post Analysts say buy these high yield ASX dividend shares for a passive income appeared first on The Motley Fool Australia.

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More reading

• Want passive income? Analysts say you can get 6%+ yields with these ASX dividend shares
• I think retirees will love these 2 ASX 200 dividend shares for passive income
• Buy these ASX dividend shares with 5%+ yields: analysts
• Investing as little as $25 a week could help me retire with $104,000 a year in passive income!
• Buy these ASX dividend shares with big yields today: experts

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 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.

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Buying the S&P/ASX 200 Index (ASX: XJO) stock Coles Group Ltd (ASX: COL) could be one of the most effective ways to unlock $1,000 of monthly passive income in the form of dividends.

Now don’t get me wrong – this would take a sizeable investment to achieve. Reaching annual income of $12,000 from one ASX 200 stock would be a notable achievement.

But, it’s easier to achieve that with an investment of the quality of Coles shares, partly thanks to its appealing dividend yield.

Coles is the operator of Coles supermarkets around Australia, as well as a number of different liquor retailers including Liquorland.

$1,000 of monthly passive income from Coles

Coles has been one of the limited few ASX 200 stocks that have increased the dividend each year since COVID-19 in 2020, 2021, 2022, and the latest half-year announcement.

I think that’s a solid record, but perhaps not too surprising consider the defensive nature of supermarket retailing. We all need to eat food.

The recent inflation situation has meant that Coles has been able to increase its gross profit margin as well as its net profit after tax (NPAT) margin. This has enabled the business to increase its dividend at a pleasing pace.

Using the estimate on Commsec, the company is expected to pay an annual dividend per share of 65 cents.

At the current Coles share price, that represents a grossed-up dividend yield of 5.2%.

Let’s crunch the numbers

To generate $1,000 of monthly passive dividend income, we’re talking about $12,000 of annual dividends and then splitting that equally between 12 months.

To make $12,000 of annual income, an investor would need to own 18,462 Coles shares. The current cost of that would come at around $330,000.

But, Coles is expected to grow its dividend in both FY24 and FY25.

By FY25, the supermarket ASX 200 stock could pay an annual dividend per share of 76 cents. That would represent growth of around 17% compared to FY23.

An annual dividend payment of 76 cents per share would be a grossed-up dividend yield of 6.1% for FY25.

If investors used the FY25 payout, investors would need to buy 15,790 shares.

What could drive the earnings higher?

If earnings go higher, then it could help drive the Coles share price and the passive dividend income higher.

Coles has a number of positive tailwinds. Inflation is enabling the business to earn higher revenue and then generate higher profit, with its margins being maintained (and increased).

But, it continues to open new stores, which boosts its overall earnings potential. It’s also benefiting from the steadily-rising population of Australia (which means more customers).

The company is working on its ‘smarter selling’ strategy, which involves being more efficient, cutting costs and being more sustainable.

Coles is also working on new, large, automated warehouses, which could make the business much more efficient in those regions, save costs and improve stock flow.

Coles share price snapshot

Over the past six months, the ASX 200 stock has lifted more than 7%.

The post For $1,000 in monthly passive income, buy 18,462 shares of this ASX 200 stock appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Is the AFIC share price a standout investment right now?
• Passive income hack: 3 simple steps to help you get rich and retire early
• Investing in ASX 200 shares? Don’t bank on an RBA rate pause in April
• 5 things to watch on the ASX 200 on Friday

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 no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Coles 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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