According to the latest weekly economic report out of Westpac Banking Corp (ASX: WBC), its team continue to forecast the cash rate remaining on hold at 0.25% until at least the end of 2021.
At this point, I can’t see any reason to believe that this forecast won’t prove accurate. Which, unfortunately for income investors, means that interest rates are likely to stay at ultra low levels for some time to come.
But don’t worry, because the two ASX dividend shares listed below could help you beat low interest rates. Here’s why I like them:
Commonwealth Bank of Australia (ASX: CBA)
The first dividend share I would consider buying to beat low interest rates is Commonwealth Bank. Although the banking giant’s shares have recovered strongly over the last few months, I still see a lot of value in them at the current level. This is especially the case for income investors due to the bank’s generous yield.
While I think Commonwealth Bank will have to cut its dividend one final time in FY 2021, I’m optimistic the cut won’t be as severe as some believe. Based on my belief that the economic damage from the pandemic won’t be as bad as first feared, I’m pencilling in a ~$3.70 per share dividend next year. If this proves accurate it will mean a forward fully franked yield of 5.3%.
Rio Tinto Limited (ASX: RIO)
Another dividend share that I would buy to beat low rates is this mining giant. I believe the company is well-placed to deliver bumper free cash flows over at least the next couple of years thanks to the high prices that iron ore is commanding. For example, in FY 2020 Rio Tinto expects its Pilbara iron ore unit costs to be US$14 to US$15 per tonne. This compares to the benchmark iron ore price of over US$100 per tonne.
And given the strength of its balance sheet, I believe Rio Tinto is likely to return the bulk of its free cash flow to shareholders in FY 2020 and FY 2021. In light of this, I estimate that its shares offer a forward fully franked dividend yield of at least 5%.
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More reading
- A good time to buy Commonwealth Bank shares?
- How I’d build a $100,000 portfolio for ASX dividend shares
- ASX 200 rebounds 1.5%, Qantas drops on capital raising
- ASX banks told to dip into capital buffers to “support businesses and households”
- ASX 200 rebounds 1.1%: Big four banks charge higher, Qantas sinks after raising $1.4bn
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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