With the banks slashing the interest rates on their savings accounts and term deposits to ultra low levels this year, it is getting harder and harder to generate a sufficient passive income to live on.
In light of this, I think savers should look to the share market for their income needs due to the high quality dividend shares on offer.
Two dividend shares that I would buy are listed below:
BHP Group Ltd (ASX: BHP)
The first dividend share to consider buying is BHP. I believe the mining giant is a great option for income investors due to its world class operations, strong balance sheet, and its positive long term growth outlook. Combined with its low costs and favourable commodity prices, I believe BHP is well-placed to deliver strong free cash flows over the coming years. This is particularly the case given that iron ore prices are hovering above US$110 a tonne at the moment.
Pleasingly for shareholders, given the aforementioned strength of its balance sheet, I expect the majority of its free cash flow to be returned in the form of dividends. As a result of this and based on the current BHP share price, I estimate that its shares offer investors a forward fully franked ~5% dividend yield.
Commonwealth Bank of Australia (ASX: CBA)
Another option for income investors to consider buying is Commonwealth Bank. This banking giant is facing very tough trading conditions at present, particularly after the Victorian lockdowns. However, with its shares down 21% from their high, I’m optimistic that the worst has been priced into its shares now.
In light of this, I feel now could be a good time to pick up shares if you don’t already have exposure to the banking sector. And while estimating what kind of dividend Commonwealth Bank will pay in FY 2021 is difficult, I expect a fully franked yield in the region of 4% to 5% at present.
Where to invest $1,000 right now
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More reading
- This is the only ASX sector tipped to report earnings growth this reporting season
- ASX 200 jumps 2% higher, Afterpay soars
- 4 things you need to know about the RBA’s rate decision today
- Should you invest in Commonwealth Bank shares?
- Beat interest rate cuts with BHP and this ASX dividend share
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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