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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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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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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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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The three ASX dividend shares I’m going to cover look like passive income beasts to me.

When I think about the types of investments I’d want to own in retirement, I would choose ones with strong dividend track records that could keep paying good dividends even during a downturn.

Dividends are not guaranteed. Dividend payouts can be reduced or cut altogether.

But, I think the businesses that have built a track record of growth – and seem like they can keep increasing the payment – makes me more interested in those names.

APA Group (ASX: APA)

APA is an energy infrastructure business that owns thousands of kilometres of natural gas pipelines around Australia. It delivers half of the nation’s natural gas usage. The business also owns or has stakes in, gas storage, gas processing and a gas power plant.

This ASX dividend share is also getting involved with the renewable energy transition. It owns solar and wind-generating assets, as well as electricity transmission assets.

Why should it be considered a passive income beast? It has increased the distribution to investors each year for over a decade and a half. That’s one of the longest currently-running dividend growth streaks on the ASX.

I think energy will continue to be in demand for beyond the foreseeable future, and APA will be involved with that. It will be particularly useful if APA is successful at being able to start transporting hydrogen in its pipelines, which could lengthen the useful life of its assets and make it even greener-focused.

The estimated distribution for FY23 of 55 cents per security, translates into a forward yield of 5.5%.

Rural Funds Group (ASX: RFF)

Rural Funds is probably my favourite real estate investment trust (REIT) on the ASX.

This ASX dividend share owns a diversified portfolio of farming properties that it leases out to large, quality tenants like Treasury Wine Estates Ltd (ASX: TWE), Select Harvests Limited (ASX: SHV) and Australian Agricultural Company Ltd (ASX: AAC).

A lot of its rental income grows through either a fixed 2.5% annual increase, or it’s linked to CPI inflation, with some contracts having an occasional market review. This organic rental growth each year helps Rural Funds grow its distribution by the targeted 4% per year.

The farms are spread across different states and climate conditions to lower risks. But, the passive income beast does own a lot of water entitlements for tenants to use.

I like that the tenants take on the operational risk of the farms, and Rural Funds can benefit from the ultra-long-term growth in the value of farmland and rent.

The business is expected to pay a total distribution of 12.2 cents per share in FY23, which translates into a yield of 6%. However, higher interest rates are a shorter-term headwind for its profit and farm valuations.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

For me, Soul Pattinson could be the best passive income beast in terms of its dividend growth – it has increased its annual ordinary dividend every year since 2000. That’s the longest growth streak on the ASX.

It operates as an investment conglomerate, which means its job is to invest in other businesses and assets. This includes ASX blue chips, ASX small-cap shares, private equity, and structured debt.

Some of its biggest investments include Brickworks Limited (ASX: BKW), TPG Telecom Ltd (ASX: TPG), New Hope Corporation Limited (ASX: NHC), Tuas Ltd (ASX: TUA), Pengana Capital Ltd (ASX: PCG) and Aeris Resources Ltd (ASX: AIS). It also has large stakes in names like Macquarie Group Ltd (ASX: MQG), BHP Group Ltd (ASX: BHP), CSL Limited (ASX: CSL) and Wesfarmers Ltd (ASX: WES).

It continues to invest in agriculture. The latest investment includes $118 million spent on citrus farms. The private investment Ampcontrol (an electrical parts business) and swimming school business called Aquatic Achievers are assessing acquisition opportunities.

In the FY23 half-year result, it increased its dividend by 24% to 36 cents per share. That makes the current ordinary grossed-up dividend yield around 4%.

The post Passive income beasts: 3 ASX dividend shares I’d buy for retirement appeared first on The Motley Fool Australia.

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• Looking to bag the bolstered Soul Patts dividend? Here’s what you need to know
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Motley Fool contributor Tristan Harrison has positions in Brickworks, Rural Funds Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, CSL, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Apa Group, Brickworks, Macquarie Group, Rural Funds Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has recommended Tpg Telecom and Treasury Wine Estates. 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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