We might be in a new financial year, but unfortunately for income investors, the outlook for interest rates hasn’t changed.
Current cash rate futures continue to point to the cash rate being between zero and 0.25% until at least the end of 2021.
In light of this, I continue to believe dividend shares are the best way to earn a passive income. But which dividend shares should you buy? Here are three that I would buy:
Commonwealth Bank of Australia (ASX: CBA)
If you don’t already have exposure to the banking sector, then I think Commonwealth Bank could be the one to buy. I believe it is the best option in the sector due to its high quality operations. And while dividend cuts are highly likely to be made in FY 2021, I’m not convinced the cuts will be as bad as some fear. I expect Commonwealth Bank to pay a fully franked dividend of $3.70 per share in FY 2020. This would be a generous 5.3% dividend yield, based on its last close price.
Transurban Group (ASX: TCL)
Another dividend share to consider buying is Transurban. It is a leading toll road operator with a portfolio of key roads in North America and Australia. The pandemic has hit the company hard and led to a sharp reduction in traffic volumes over the last few months. The good news is that with restrictions now easing, traffic volumes are starting to recover. And while it may take time for its roads to be back to their former glory, I’m optimistic it will be generating enough toll revenue to pay a decent distribution in FY 2021. At this point, I’m forecasting a 49 cents per unit distribution in FY 2021. This works out to be a forward 3.5% distribution yield.
VanEck Vectors Australian Banks ETF (ASX: MVB)
Finally, if you’re not sure whether Commonwealth Bank is the best bank to buy, but you’re wanting exposure to the banking sector, then the VanEck Vectors Australian Banks ETF could be a great option. This exchange traded fund gives investors exposure to Commonwealth Bank and the rest of the big four banks through just a single investment. It also provides investors with access to the regional banks and investment bank Macquarie Group Ltd (ASX: MQG). I estimate that its units currently provide a forward dividend yield in the region of 5%.
Where to invest $1,000 right now
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Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of June 30th
More reading
- Top ASX Stock Picks for July 2020
- Top brokers name the latest ASX shares to buy today
- Morgans picks the best FY21 ASX buys for the COVID-19 world
- ASX bank shares have experienced a horrible financial year
- Is CommBank still the best ASX dividend share to buy?
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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