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Income investors are likely aware ANZ Group Holdings Ltd (ASX: ANZ) shares have delivered the biggest dividend yield of the S&P/ASX 200 Index (ASX: XJO) big four banks for some time.

And its notable payout ratio could be set to grow.

Right now, shares in ANZ are trading for $23.72, leaving the stock with a 6.15% trailing dividend yield.

Coming in second best in terms of dividends among ASX 200 big four banks is Westpac Banking Corp (ASX: WBC). It offers a 5.35% trailing yield.

Looking ahead, however, one broker is tipping ANZ to grow its dividends by another 20%. Here are all the details.

Could ANZ shares really offer $1.76 of dividends in FY24?

ANZ shares could be a passive income buy, if Citi’s forecasts for dividends of the smallest big four bank are accurate.

The broker is tipping the bank to grow its dividends to $1.76 per share in financial year 2024, my Fool colleague James recently reported.

That’s up from $1.46 per share last financial year, consisting of a 72-cent interim dividend and a 74-cent final dividend.

If Citi’s forecast bears fruit, ANZ could boast a 7.4% dividend yield next year considering its current share price. Though, the broker is tipping the stock’s value to grow as well.

It has slapped ANZ shares with a buy rating and a $29.25 price target – a potential 23% upside. At this price, $1.76 of dividends per share would represent a 6% yield.

The broker likes the bank’s net interest margin (NIM), saying rising interest rates could lead to higher earnings.

However, Goldman Sachs isn’t nearly so bullish. It’s neutral on ANZ shares, tipping them to trade at $26.25 – representing a potential 11% upside.

It’s also forecasting ANZ’s dividends to reach $1.58 in the coming years.

That would see the banking share offering a 6.7% yield at its current price and a 6% yield at the broker’s forecasted price.

In a less positive note, Goldman Sachs tips earnings benefits born from rising NIMs to wane from financial year 2024, while costs aren’t expected to abate.

The post Can income investors bank on a 7% dividend yield from ANZ shares? appeared first on The Motley Fool Australia.

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More reading

• Can ASX bank shares deliver in 2023 after higher interest rates?
• Will 2023 get better for ASX 200 shares?
• ASX financial shares lifted the ASX 200 today
• ANZ shares were slaughtered in 2022. Does the new year bring fresh hope?
• 5 things to watch on the ASX 200 on Wednesday

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Brooke Cooper 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 recommended Westpac Banking. 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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When it comes to investing, you will often read that “past performance is no guarantee of future returns.” This is an important (and true) statement for investors to take into account when investing in ASX shares. Just because a share has risen strongly one year, doesn’t mean it will do the same the next year.

However, it can still pay to look at past events to see how they have impacted the performance of certain shares previously.

For example, over the last five years, BHP Group Ltd (ASX: BHP) shares have been on fire and generated an average total return of 17% per annum for investors. This would have turned a $1,000 investment in 2018 into approximately $2,200 today.

This market-beating return has been underpinned by strong commodity prices, which have driven the Big Australian’s shares higher and allowed it to pay big dividends to shareholders.

What sort of return could BHP shares generate in 2023?

It’s quite clear that for BHP shares to have a successful year, the mining giant needs commodity prices to be favourable.

The good news is that China’s reopening from COVID lockdowns and restrictions is expected to be supportive of demand for many commodities such as copper, iron ore, and oil. Particularly if it pour billions into stimulus programs to reignite its faltering economic growth.

In fact, copper has just hit a six-month high on the London Metal Exchange thanks to Chinese demand optimism. And while iron ore dipped yesterday, it was still fetching US$116.25 a tonne on the Singapore exchange. The latter is significantly higher than BHP’s WAIO unit cost guidance of US$18-19 per tonne.

In light of this, the mining giant appears well-positioned to generate bumper free cash flow again in FY 2023, which could bode well for BHP shares.

Potential returns

According to a note out of Macquarie, its analysts have an outperform rating and $50.00 price target on the company’s shares.

Based on the current BHP share price, this implies modest upside of 5.1% for investors in 2023.

However, that doesn’t include dividends. Macquarie is forecasting a fully franked $2.88 per share dividend this year. This equates to a 6% dividend yield, which brings the total potential return on offer with BHP shares to over 11%.

While this might not be as great a return as we have seen over the last five years, it would still turn a $1,000 investment into over $1,100. Which isn’t to be sniffed at in the current environment!

The post If I invest $1,000 in BHP shares now, what could my return be this year? appeared first on The Motley Fool Australia.

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More reading

• My top predictions for ASX 200 shares in 2023
• Why is the BHP share price having such a strong start to the week?
• How different is the Vanguard Australian Shares Index ETF (VAS) now compared to a year ago?
• Why are ASX 200 iron ore shares jumping higher today?
• How much profit are BHP shares going to make in 2023?

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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Due to high inflation, rising interest rates, and the cost of living crisis, the economic outlook remains very uncertain. In light of this, it could be prudent for investors to seek ASX dividend shares that offer defensive characteristics and a solid track record of paying shareholders a rising passive income.

But how do you identify dividend shares to buy in the current environment? Listed below are three steps to find top ASX dividend shares to buy in 2023 and beyond.

Defensive characteristics

The first step to take is identifying dividend shares that have defensive characteristics. Doing so could mean that your portfolio has a greater chance of offering a rising passive income regardless of what happens in the economy.

This could mean searching for ASX dividend shares in the utilities and consumer staples sectors, where sales and profitability are less likely to be impacted by an economic slowdown than in other sectors.

A track record of dividend growth

Another step for investors to take is to look for companies that have a strong track record of growing their dividends. Particularly if they were able to maintain (or even grow) their dividends during previous periods of economic uncertainty. This is the sign of a strong and/or adaptable business model.

Investors can look at annual reports or online share trading platforms to check the track records of dividend payments for companies.

A positive outlook

A track record of growing dividend payments means nothing if the company’s longer-term outlook isn’t positive. Investors should keep their eyes open for disruption or signs that a company’s future is less certain than it was.

An example of this might have been Telstra Group Ltd (ASX: TLS) a decade or so ago when the NBN rollout began. While Telstra had been a defensive option for investors for some time, the goalposts were well and truly changed with the NBN rollout and its dividend payments were on a downward trajectory until recently.

Foolish Takeaway

Overall, if you follow these steps, I believe you could be better positioned to find ASX dividend shares that will provide you with a growing passive income long into the future.

The post 3 steps I’d take to find top ASX dividend shares to buy in 2023 and beyond appeared first on The Motley Fool Australia.

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More reading

• If I invest $1,000 in BHP shares now, what could my return be this year?
• Looking to sniff out ASX dividend opportunities? This share is forecast to pay a sweet 12% yield
• Brokers name 2 ASX dividend shares to buy now
• Want 17% upside plus dividend income? Broker says buy Wesfarmers shares
• Bought $1,000 of CSL shares 10 years ago? Here’s how much dividend income you’ve received

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 positions in and has recommended Telstra 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 Dusk Group Ltd (ASX: DSK) share price could be a leading ASX dividend share for investors to sniff out.

For readers that haven’t heard of this one before, it describes itself as a specialty retailer of home fragrance products, offering a range of Dusk-branded “premium quality products at competitive prices”. It sells things like candles, ultrasonic diffusers, reed diffusers, essential oils and fragrance-related homewares.

Its products are designed ‘in-house’ and are exclusive to Dusk.

Why is the ASX dividend share’s yield so high?

According to Commsec estimates, the business is expected to pay an annual dividend per share of 16.7 cents in FY24.

At the current Dusk share price, this translates into an FY24 grossed-up dividend yield of around 12%.

While FY25 is further out, it may be worth noting that the dividend estimate for FY25 is 20.4 cents per share. This would be a grossed-up dividend yield of 14.6%. But, at this stage, that’s just a distant projection.

I’d put the high dividend yield down to two or three things.

Firstly, the Dusk share price has dropped by around 33% over the past year. A lower share price has the effect of boosting the dividend yield.

Next, the ASX dividend share is valued at a low multiple of its earnings. According to Commsec, the Dusk share price is valued at 8 times FY24’s estimated earnings.

I’d also put the high dividend yield down to the fairly high dividend payout ratio. It’s forecast to have an FY24 dividend payout ratio of 68%.

Positives about the business

Dusk says that its vertical retail model provides flexibility and control. The company reportedly has over 750,000 members.

Management believes that the company has a compelling customer proposition, with affordable luxuries. Around 30% to 40% of sales are gifting.

One of the most promising aspects of the ASX dividend share, according to Dusk, is its growth in high margin consumables.

In the first 19 weeks of FY23, total sales were up 23.9% year over year. It said it opened five new stores in time for Christmas and it expects to open another three or four in Australia in the second half.

Management also said it’s likely that the company will open more stores in New Zealand if trading continues to meet expectations.

The post Looking to sniff out ASX dividend opportunities? This share is forecast to pay a sweet 12% yield appeared first on The Motley Fool Australia.

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More reading

• Brokers name 2 ASX dividend shares to buy now
• Want 17% upside plus dividend income? Broker says buy Wesfarmers shares
• Bought $1,000 of CSL shares 10 years ago? Here’s how much dividend income you’ve received
• How to minimise risk using ASX 300 dividend shares: fundie
• Can ASX bank shares deliver in 2023 after higher interest rates?

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 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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Are you looking for dividend shares to buy? If you are, then the two named below could be worth checking out.

Both have been named as buys by brokers and tipped to provide investors with attractive yields. Here’s what you need to know about them:

Coles Group Ltd (ASX: COL)

The first ASX dividend share that could be in the buy zone is Coles.

The team at Morgans is positive on the supermarket giant and has put an add rating and $19.50 price target on its shares.

The broker feels that Coles’ shares are trading at an attractive level given its defensive characteristics in this uncertain economic environment. It also believes that a reversion in shopping habits since the pandemic will be a positive for Coles. The broker explained:

Trading on 20.6x FY23F PE and 4.0% yield, we continue to see COL as offering good value with the company’s solid balance sheet and defensive characteristics putting it in a good position to navigate through a weaker economic environment. The unwinding of local shopping should also help further market share gains.

In respect to dividends, Morgans expects a fully franked dividend of 64 cents per share in FY 2023 and a fully franked dividend of 66 cents per share in FY 2024. Based on the current Coles share price of $16.52, this will mean yields of 3.9% and 4%, respectively.

Universal Store Holdings Ltd (ASX: UNI)

Another ASX dividend share that has been tipped as a buy is Universal Store.

It is a growing retailer focused on youth fashion through the Universal Store and Thrills brands.

Goldman Sachs notes that the company’s shares have fallen heavily over the last 12 months amid weakness in the retail sector. Its analysts believe this has created a buying opportunity for investors due to the company’s exposure to younger consumers and its expansion options. The broker commented:

In addition to a strong outlook for Gen-Z spending, we see an opportunity for ongoing store roll-out for UNI which is the market leader in youth multi-brand apparel. Relative to youth footwear, the youth apparel category is under-penetrated in terms of store footprint; we forecast an additional 22 Universal stores will be rolled out in the next three years.

Goldman Sachs has a buy rating and $7.30 price target on its shares.

As for dividends, the broker is expecting fully franked dividends of 26.1 cents in FY 2023 and 29.9 cents in FY 2024. Based on the latest Universal Store share price of $5.14, this equates to yields of 5.1% and 5.8%, respectively.

The post Brokers name 2 ASX dividend shares to buy now appeared first on The Motley Fool Australia.

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More reading

• Buy these cheap ASX dividend shares: Goldman Sachs
• Here’s how I’ll be investing my money in ASX shares in 2023
• How I’d invest $1,000 in ASX 200 shares for rising inflation
• How I’d use a stock market crash to boost my passive income
• 3 steps to generating passive income with ASX 200 dividend shares in 2023

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 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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Although they have started 2023 in a positive fashion, Wesfarmers Ltd (ASX: WES) shares are still down meaningfully over the last 12 months.

As you can see below, during this time, the conglomerate’s shares have lost 17% of their value.

While this is disappointing, one leading broker believes that this share price weakness could have created a buying opportunity for investors.

Big returns expected from Wesfarmers shares

According to a recent note out of Morgans, its analysts have the company’s shares on their best ideas list with an add rating and $55.60 price target.

Based on where Wesfarmers shares are trading right now, this implies potential upside of over 17% for investors in 2023.

But it gets better! The broker is also expecting Wesfarmers to reward its shareholders with a $1.82 per share fully franked dividend this year.

This equates to a 3.85% dividend yield for investors, which stretches the total potential return to approximately 21%.

Why buy Wesfarmers?

The broker highlights that Wesfarmers is better positioned than most in the current economic environment due to its value offering. It points out that “Kmart is well-placed to benefit with the average price of an item at around $6-7.”

Overall, Morgans believes that Wesfarmers shares are trading at an “attractive” level given the quality of its portfolio and strong balance sheet. It commented:

Trading on 22.5x FY23F PE and 3.8% yield, we continue to see WES’s valuation as attractive for a high-quality business with a diversified group of retail and industrial brands, solid balance sheet and strong leadership team that will continue delivering long-term value for shareholders.

All in all, this could make Wesfarmers one to consider if you’re looking for blue chip shares for your portfolio in 2023.

The post Want 17% upside plus dividend income? Broker says buy Wesfarmers shares appeared first on The Motley Fool Australia.

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More reading

• My top predictions for ASX 200 shares in 2023
• How different is the Vanguard Australian Shares Index ETF (VAS) now compared to a year ago?
• My best ASX 200 dividend shares for 2023
• These are the ASX dividend shares to buy now: brokers
• 2022 was brutal for Wesfarmers shares. What now?

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 positions in and has recommended Wesfarmers. 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 CSL Limited (ASX: CSL) share price has outperformed the broader market over the last 12 months. The stock has fallen 1% since this time last year while the S&P/ASX 200 Index (ASX: XJO) has dropped 4%.

But the CSL share price’s domination of the index isn’t new. Over the last 10 years, the biotechnology giant’s shares have gained a whopping 433%. For comparison, the ASX 200 has lifted a respectable 52% in that time.

If one were to have invested $1,000 in CSL shares in January 2013, they likely would have walked away with 19 securities and around $13 change, paying $51.95 per share.

Today, that parcel would be worth a whopping $5,263. The CSL share price is currently $277.  

But that’s not all.

Let’s dive into the dividends our figurative long-term investor may have received over the life of their investment.

How much have CSL shares paid in dividends in 10 years?

Here are all the dividends offered by CSL over the decade just been, rounded to the nearest cent:

CSL dividends’ pay date	Type	Dividend amount
October 2022	Final	$1.76
April 2022	Interim	$1.42
September 2021	Final	$1.59
April 2021	Interim	$1.35
October 2020	Final	$1.47
April 2020	Interim	$1.47
October 2019	Final	$1.45
April 2019	Interim	$1.20
October 2018	Final	$1.28
April 2018	Interim	$1
October 2017	Final	92 cents
April 2017	Interim	84 cents
October 2016	Final	89 cents
April 2016	Interim	81 cents
October 2015	Final	90 cents
April 2015	Interim	74 cents
October 2014	Final	65 cents
April 2014	Interim	59 cents
October 2013	Final	57 cents
April 2013	Interim	49 cents
Total:		$21.39

Over the last 10 years, our figurative investor has likely received $21.39 per CSL share they’ve held – a total of $406.41 of passive income.

That’s certainly nothing to scoff at. Indeed, dividends alone have returned almost 40% of their purchase price. It also bumps their total return on investment (ROI) to a whopping 474%.

And of course, that could have been higher if they compounded their returns by reinvesting their dividends.

CSL shares currently trade with a modest 1.1% dividend yield.

The post Bought $1,000 of CSL shares 10 years ago? Here’s how much dividend income you’ve received appeared first on The Motley Fool Australia.

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More reading

• How different is the Vanguard Australian Shares Index ETF (VAS) now compared to a year ago?
• Are healthy returns on the horizon for ASX 200 healthcare shares in 2023?
• I’d listen to Warren Buffett and invest in ASX shares with wide economic moats
• Build a strong portfolio in 2023 with these ASX 200 blue chip shares: experts
• Are these the best ASX 200 shares to buy and hold?

Motley Fool contributor Brooke Cooper 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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S&P/ASX 300 Index (ASX: XKO) dividend shares could be the place to look for returns according to one fund manager.

The fund manager Michael O’Neill from Investors Mutual has suggested that capital growth in the next decade is “likely to be lower than the last decade”.

With the end of ultra-low interest rates and available money, the very long bull market has been ended by high inflation and rising interest rates. He suggested that it’s “very unlikely” that we are going to enter another long bull market with a similar amount of capital growth.

The fund manager suggested that volatility is going to stay elevated in the near term, but also suggested that it’s a good time for stock picks, with “a great chance to pick up high-quality companies at bargain prices.”

We can see that volatility with the exchange-traded fund (ETF) Vanguard Australian Shares Index ETF (ASX: VAS).

Time for dividends?

O’Neill suggested that the importance of dividends is increasing during times like these because they “provide more reliable returns than capital gains.”

He noted that over the past 20 years, income returns made up just over half of total returns from ASX 300 shares. On top of that, while capital returns can be very volatile, the dividend returns are “remarkably reliable – making them particularly valuable when returns on capital are low, or negative.”

The fund manager pointed out that capital returns rely on movements in individual share prices, but the level of dividends is decided by the company’s board and the company’s overall profitability. He concluded this point by saying:

In periods where the overall share market goes down, an investor’s dividends should stay much the same if they have a diversified portfolio made up of quality companies.

He also suggested that dividend yields can act as a safety net at times of volatility. O’Neill suggested the Investors Mutual investment team have observed over many years of investing that “once sentiment starts to turn, companies with sustainable earnings that support a healthy, consistent dividend stream are often the shares that recover the most quickly.”

Regardless of what happens with the share price, O’Neill said that when quality companies drop and the dividend yield is attractive and sustainable, long-term investors buy them so they can ‘lock in’ high-income levels.

Which ASX 300 dividend shares to buy?

The fund manager said investors should be cautious about risky sectors like commercial property, resources and other cyclical sectors. Instead, they prefer industrials, including ones that can perform well when inflation is high.

They look for names that have pricing power that can pass on rising costs to customers.

The investment team also want to find businesses that operate in a ‘rational’ industry where the main players are motivated by profit and act rationally to maximise long-term profit (not spending large amounts of capital at the top of the cycle, or chasing market share at all costs through unprofitable discounting).

Investors Mutual wants to look at businesses that sell essential products and services. It also wants to find companies that have good management, that can put “well-structured contracts in place that make difficult conversations about passing on inflationary costs easier.”

In terms of which ASX 300 dividend shares could be good ideas, O’Neill picked out four names with relatively low price/earnings (P/E) ratios and high dividend yields:

• Rail infrastructure business Aurizon Holdings Ltd (ASX: AZJ)
• The food and liquor supplier, and hardware business, Metcash Limited (ASX: MTS)
• Explosives business Orica Ltd (ASX: ORI)
• Insurance business Suncorp Group Ltd (ASX: SUN)

The post How to minimise risk using ASX 300 dividend shares: fundie appeared first on The Motley Fool Australia.

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More reading

• The 3 ASX 200 bank shares that outperformed all others in 2022
• Top ASX shares to buy in January 2023
• ASX financial shares lifted the ASX 200 today
• How I’d invest $1,000 in ASX 200 shares for rising inflation
• How I’d invest $10,000 in ASX shares if I was starting from scratch in 2023

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 recommended Aurizon and Metcash. 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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ASX bank shares are under the spotlight this year as the effect of higher interest rates comes through in the results. Is this where investors should be looking?

The key earnings generator for most of the banks on the ASX is lending. So, the interest rate can play a key role in the profitability of banks.

A bank lends money out for a certain interest rate. But, there is also a cost to the money that it lends out, such as savings accounts or term deposits. The difference between the lending rate and the cost (eg the rate for savers) is known as the net interest margin (NIM).

In 2022, we saw ASX bank shares pass on interest rate rises to borrowers much faster than savers. This is improving bank profitability, with an improvement in the NIM.

The RBA has increased the interest rate from 0.1% to 3.1% over the last 12 months. Under this environment, is the outlook for the sector promising?

Varied share price performance

Over the last 12 months, different banks have seen differing performances.

For example, the National Australia Bank Ltd (ASX: NAB) share price has managed a slight gain over the past 12 months.

Whereas the ANZ Group Holdings Ltd (ASX: ANZ) share price has dropped around 15% over the last year.

The Bank of Queensland Limited (ASX: BOQ) share price has fallen around 17% over the last year.

Of course, there are a number of other ASX bank shares to look at including Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Bendigo and Adelaide Bank Ltd (ASX: BEN) and MyState Limited (ASX: MYS).

Are ASX bank shares a good opportunity?

The investment giant Blackrock recently pointed out that “higher interest rates bode well for bank profitability”.

A number of banks have said they are entering FY23 with a higher starting NIM than what they experienced during FY22.

I personally don’t think I would want to buy CBA shares right now because they trade at a much higher price/earnings (P/E) ratio than other banks.

But I like the direction that NAB’s leadership is taking the bank in, its profit growth also seems impressive and I think the valuation looks good.

According to Commsec, the CBA share price is valued at 17 times FY23’s estimated earnings, while the NAB share price is valued at 12 times FY23’s estimated earnings. NAB is projected to pay a grossed-up dividend yield of 8.25% in FY23.

According to the panel of analysts that Commsec follows, only one rates NAB as a sell, while six rate NAB shares as a buy. There are also nine hold ratings.

The post Can ASX bank shares deliver in 2023 after higher interest rates? appeared first on The Motley Fool Australia.

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More reading

• How ASX dividend shares can solve retirement income needs
• My top predictions for ASX 200 shares in 2023
• Are CBA shares worth buying for dividend income in 2023?
• How different is the Vanguard Australian Shares Index ETF (VAS) now compared to a year ago?
• Buy NAB and this ASX dividend share for a passive income boost: analysts

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 Bendigo And Adelaide Bank. The Motley Fool Australia has recommended Westpac Banking. 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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Retirement is an important stage of life to get right. People ideally enter retirement with a nicely-sized nest egg. With the best days of employment earnings likely behind them, receiving income from a retirement fund could be essential. Certainly, ASX dividend shares could help.

The Australian Financial Review reported that over the next decade, around 3.6 million Australians will move from the accumulation phase to the retirement phase with their superannuation, according to deputy chair of the Australian Prudential Regulation Authority (APRA) Helen Rowell. This could affect $750 billion in savings.

The newspaper quoted the principal of Moran Partners Financial Planning, Paul Moran, who said:

Average punters have no idea about how retirement income works. They understand saving for their retirement but are not sure how they get an income.

There are a number of different sources of potential income. Online savings accounts and term deposits are finally offering a good interest rate. Property rental yields are getting better and improving every month as property prices fall. However, remember that the gross rent yield and net rent yield for property are not the same.

ASX dividend shares can also play a very useful role in developing a passive income stream.

Each household’s circumstances are different, with different goals and objectives. This is where a financial planner could be very useful to create a plan.

How ASX dividend shares can help

There are plenty of ASX dividend shares that are able to offer investors a higher dividend yield than other assets can typically offer.

For example, Westpac Banking Corp (ASX: WBC) is expected to pay a grossed-up dividend yield of 8.4% in FY23, which is much higher than what its term deposits are currently offering. But term deposits are guaranteed, and the capital is also protected. Share prices can be very volatile.

Historically, share prices for plenty of businesses have gone on to recover from a widespread market drop. Just look at what happened after the GFC and the COVID-19 crash – the market went on to new heights. But that doesn’t mean that it’s not painful when investors go through volatility.

Not only can ASX dividend shares pay a good dividend yield, but some of them also have the ability to grow profit over time. This enables them to grow dividends and, hopefully, lead to a rising share price over time.

Examples of businesses that have grown their dividend for a number of years include Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW), Sonic Healthcare Ltd (ASX: SHL), Rural Funds Group (ASX: RFF), and APA Group (ASX: APA).

Investors could also use ASX exchange-traded funds (ETFs) to invest in a broad range of businesses on the ASX, or internationally, to achieve significant diversification through one investment.

Foolish takeaway

ASX dividend shares can be a great way for an investor to generate more passive income from their investments but, generally, the higher the yield, the less consistent that dividend may be.

I’m building a portfolio of ASX dividend shares that I believe can keep growing dividends and pay for my life expenses in the future, so I fully believe in this strategy.

The post How ASX dividend shares can solve retirement income needs appeared first on The Motley Fool Australia.

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More reading

• How different is the Vanguard Australian Shares Index ETF (VAS) now compared to a year ago?
• Are healthy returns on the horizon for ASX 200 healthcare shares in 2023?
• Will 2023 get better for ASX 200 shares?
• The 3 ASX 200 bank shares that outperformed all others in 2022
• Brokers name 3 ASX shares to buy now

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 and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Apa Group, Brickworks, Rural Funds Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Sonic Healthcare and Westpac Banking. 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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