The pool of reliable high-yield dividend paying stocks is shrinking!
It’s income investors who depend on regular distributions from their ASX share portfolio who are the biggest losers from the coronavirus pandemic.
You can still find stocks generous defensive dividends if you cared to look, and I think these stocks will outperform the S&P/ASX 200 Index (Index:^AXJO) due to their scarcity.
Growth beating income
It’s easier to find stocks with good growth potential despite COVID-19 than dependable dividend paymasters, in my view.
Look at the tech sector in the US and Australia. The likes of Amazon.com, Inc. (NASDAQ: AMZN) and Afterpay Ltd (ASX: APT) surged to record highs recently.
Meanwhile, the list of ASX stocks suspending or lowering their dividends is growing. We don’t have to mention the big banks like Westpac Banking Corp (ASX: WBC) or Australia and New Zealand Banking GrpLtd (ASX: ANZ). The big hit they took to profits forced them to postpone paying an interim dividend.
Even stocks like CSR Limited (ASX: CSR) which delivered a much better than expected profit result is erring on the side of caution and suspending its payout.
I am not suggesting that turning into a scrooge as we face off what is probably the worst recession in living memory is a bad idea. But some stocks are going from strength to strength, and are offering up an enticing dividend that’s hard to ignore.
Rock solid dividend
One such candidate is iron ore miner BHP Group Ltd (ASX: BHP). I’ve long been overweight on the stock for this reason, and UBS just upgraded the stock to “buy”.
“In our view, BHP is in a strong position with gearing at 17% and net debt of US$12bn,” said the broker.
“This should enable BHP to continue to return surplus cash to shareholders at a time when other more traditional dividend-paying stocks are not.”
BHP is forecast to deliver at least a 5% yield before franking credits.
Perfect package
Another stock that is proving its dividend mantle is AMCOR PLC/IDR UNRESTR (ASX: AMC). The global packaging giant released its quarterly results yesterday, which I believed was a cracker.
JP Morgan shares this view and describes the stock as its top pick in the sector. The highlight was the cost control for Amcor’s Flexibles business (soft plastic packaging).
“We believe that AMC has ample opportunity to grow ahead of peers in the years ahead due to Bemis synergies, efforts on sustainability, further M&A or buy-backs,” said the broker.
“The primary concern we hear from investors relates to top line performance, but if 3Q20 trends can be sustained over the medium term (as management has suggested), we would expect to see a multiple re-rating.”
The stock is yielding around 5% and there’s scope for dividend increases, in my view.
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More reading
- Why CBA, CSR, Fortescue, & Northern Star shares are pushing higher
- 2 quality ASX shares to buy for long-term growth
- 3 top ASX 200 shares you can buy on sale today
- Why diversification is important and how to diversify your portfolio with ASX shares
- 3 ASX 200 value plays for an economy hell-bent on recovery
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors.
Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, BHP Billiton Limited, and Westpac Banking. Connect with me on Twitter @brenlau.
The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia owns shares of and has recommended Amcor Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Amazon. 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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