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2 ASX dividend shares rated top buys by brokers

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ASX dividend shares are able to pay investors a higher level of income than some other types of assets.

Businesses can choose to pay out a high level of their profit or cash flow each year to shareholders. When combined with capital growth, it can lead to pleasing total returns.

But a company isn’t necessarily worth buying just because it pays a dividend. Analysts have rated these ASX dividend shares as a buy, with expectations of sizeable future dividends:

Adairs is a retail ASX share that runs three different businesses – Adairs, Mocka and Focus on Furniture.

Since the start of 2022, the Adairs share price has sunk 30%. However, the decline of a valuation can have the benefit of an increasing potential dividend yield.

The broker Morgans currently rates Adairs as a buy, with a price target of $3.50. That’s more than 20% higher than where it is today.

How big could the dividends be? Morgans is expecting a grossed-up dividend yield of 9.6% in FY22 and a grossed-up dividend yield of 13.2% in FY23. Profit is expected to bounce back in FY23 after the COVID-19 lockdowns during the first half of FY22.

Adairs plans to grow future profit in several ways. It is going to upsize some of its stores, which are materially more profitable than smaller stores. Adairs wants to add more stores to its network, particularly with the newly acquired Focus on Furniture.

The ASX dividend share also wants to save costs and fulfil more online orders with its new national distribution centre. This new distribution centre is expected to save more than $3 million of annual expenses.

Morgans’ forecasts suggest that the Adairs share price is valued at 7x FY23’s estimated earnings.

Despite all of the volatility in 2022, the JB Hi-Fi share price has actually gone up this year. But only just, with a rise of 1.3%.

Morgans also thinks that JB Hi-Fi is a buy, with a price target of $57. That suggests a possible rise of 15% over the coming year, if the broker’s prediction comes true.

The broker was impressed by JB Hi-Fi’s half-year result, with profitability stronger than expected. Morgans thinks the ASX dividend share is a very capable business with good competitive advantages.

For readers that missed the interim result last month, total sales fell 1.6% to $4.86 billion and net profit after tax (NPAT) dropped 9.4% to $287.9 million. The interim dividend was reduced by 9.4% to $1.63 per share. JB Hi-Fi also announced a capital return of up to $250 million through an off-market buyback.

The retailer reported that in January 2022 it continued to see heightened demand. Compared to January 2021, JB Hi-Fi Australia sales were up 3.6% and The Good Guys sales increased 1.9%.

In terms of the expected dividend payouts, Morgans has estimated a grossed-up dividend yield of 7.5% for FY22 and 6.9% in FY23.

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