A large portion of the Australian economy is reliant on tourism and high value exports such as tertiary education. With the coronavirus pandemic effectively shutting down the majority of the economy, Australia’s mining sector has remained a pillar of strength.

So, will the surging price of iron ore help the Australian economy recover faster?

Why is the iron ore price surging?

With economic fears of the coronavirus pandemic subsiding, the iron ore spot price has surged more than 10% since the end of April and is currently trading above US$91 a tonne. The iron ore price has surged on the back of stronger than expected demand from China and weak supply from exporters in Brazil.

Earlier this year, the pandemic triggered fears as steel stockpiles in China surged due to subdued construction demand. However, as construction projects have restarted in China the country’s steel surplus has been absorbed. In addition, the potential for infrastructure stimulus has also strengthened the demand side.

In addition to stronger demand, the rapid spread of coronavirus cases in Brazil has impacted the country’s output. Brazil has long been the world biggest producer of iron ore, however a dam collapse last year resulted in tighter restrictions being placed on mines. Surging coronavirus cases in the country have also raised concerns about future iron ore supply.

How have iron ore miners performed?

Iron ore miners on the ASX have outperformed in 2020 despite the tumultuous conditions of financial markets. Fortescue Metals Group Limited (ASX: FMG) has seen its share price surge almost 30% for the year and is currently trading at all-time highs. Mining giants BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) have also seen strong demand with their share prices bouncing 44% and 28%, respectively, from their lows in March.

The Australian mining sector was partially immune to the coronavirus lockdown with workers allowed to commute for work. In addition, coronavirus transmission in the iron ore producing heartland of Western Australia remains low.   

Foolish takeaway

According to the Minerals Council of Australia, iron ore exports are the largest source of export revenue in Australia, contributing $63 billion in 2017 to the economy. Iron ore producers in Australia are poised to benefit and provide a boost to the local economy as they dominate supply for recovering Chinese demand.

In addition to the economy, the ASX 200 iron ore miners could also provide value to shareholders. With companies in the banking sector slashing dividends, iron ore miners could fill the income void by matching or increasing their payouts.

More reading

• 3 ASX shares that will have strong dividends in 2020
• 5 ASX 200 dividend shares for an economic recovery
• Why ASX iron ore miners like BHP aren’t afraid of the China trade war
• Fortescue share price hits a record high: Is it too late to invest?
• ASX 200 up 1.35%: Gold miners and Fortescue rocket higher, big four banks tumble

Motley Fool contributor Nikhil Gangaram 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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The Commonwealth Bank of Australia (ASX: CBA) share price has been a positive performer on the S&P/ASX 200 Index (ASX: XJO) on Tuesday.

In afternoon trade the banking giant’s shares are up 2% to $60.00.

Despite this decent gain, the Commonwealth Bank share price is still down a sizeable 34% from its 52-week high.

Are CBA shares in the buy zone?

I think Commonwealth Bank’s shares are in the buy zone at this level. Though, given how poor investment sentiment is in the sector, I wouldn’t necessarily be surprised if they went lower before going higher.

However, for patient investors that are not bothered by the day to day fluctuations of share prices, I believe an investment at the current level will yield strong total returns over the next three to four years.

Times certainly are tough for the bank right now, but the cycle will soon change and growth will emerge once more. I’d want to be holding its shares when that happens.

What about dividends?

I feel it is inevitable that Commonwealth Bank will have to cut its dividend again in FY 2021.

Estimating just how much of a cut is very difficult and will depend a lot on how accurate its COVID-19 provisions are. However, I would expect the bank to pay out a dividend of around $3.70 per share next year.

While this dividend would be just a touch higher than the one it paid all the way back in 2013, the pullback in its share price means it still equates to a very generous yield.

Based on its current share price, this implies a forward fully franked 6.15% dividend yield. That certainly is attractive in my eyes in this low interest rate environment.

Foolish Takeaway.

The Commonwealth Bank share price could easily go lower before it goes higher again. However, trading conditions will eventually improve and its share price will almost certainly start moving upwards when the market first anticipates this change.

In light of this, I think it could be a good idea to pick up shares with a long term and patient view today.

More reading

• 3 ASX 200 blue chip shares I would buy today
• The ASX big bank stock most likely to outperform in the COVID-19 recovery
• Should you throw $3,000 into Altium shares today?
• Cochlear share price edges lower on patent infringement news
• 3 ASX shares to instantly diversify your portfolio

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.

The post Are CBA shares in the buy zone? appeared first on Motley Fool Australia.

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Looking for strong dividends in 2020?

Well, they’re not as easy to find as it might have appeared in January or February. Since the outbreak of the coronavirus and subsequent economic lockdowns, a huge range of ASX blue-chips announced dividend cuts or even cancellations.

These include everything from the ‘big four’ banks like Westpac Banking Corp (ASX: WBC) to ‘safe’ dividend payers like Transurban Group (ASX: TCL).

But I think there are still some companies out there that offer a solid dividend outlook for 2020 and beyond (although anything is possible). So here are three ASX shares that (in my opinion) won’t have to cut their shareholder payouts this year.

Coles Group Ltd (ASX: COL)

Coles was the face of defensive ASX companies as the coronavirus pandemic took hold. Consumers flocked to Coles and other supermarkets to stock up on essentials, which initially saw Coles post a 12% rise in sales for the first quarter of FY20 last month. Although I suspect demand has returned to more normal levels since, it certainly proved how useful being a consumer staples giant can be in tough times.

As such, I think Coles’ dividends will continue to flow in 2020 (and might even get an increase). On current prices, you can expect a trailing dividend yield of 2.75% from Coles shares – or 3.93% grossed-up with full franking.

Fortescue Metals Group Ltd (ASX: FMG)

Fortescue is one of the largest iron ore mines in the country and has amassed a reputation as a strong dividend payer in recent years. Even on current prices (which are at record highs today), Fortescue has a trailing dividend yield of 7.23% – or 10.76% grossed-up with full franking.

Right now, iron ore is a great business to be in. The iron ore price hit US$91.90 today and looks to push even higher after production issues emerged in Brazil. If these prices hold (or even if they don’t), Fortescue should be able to shovel even more cash out the doors in 2020.

WAM Research Ltd (ASX: WAX)

WAM Research is a Listed Investment Company (LIC) that specialises in finding undervalued growth companies. It has a long and strong history of paying fully franked dividends, which, at the time of writing, give WAX shares a trailing yield of 7.33% (or 10.47% grossed-up).

But the best part of this story is that this LIC has plenty of gas left in the tank to continue to pay these dividends. Its most recent interim dividend came out at 4.9 cents per share – well covered by the company’s profit reserves of 26.2 cents per share. That’s a big buffer for dividend payments to carry us through 2020!

More reading

• Could ASX 200 iron ore shares save the Australian economy?
• 2 ASX 50 shares for retirees to buy right now
• Is the Bega Cheese share price a strong ASX buy today?
• Forget term deposits and buy these top ASX dividend shares
• Latest ABS data reveals how Australians are responding to COVID-19

Motley Fool contributor Sebastian Bowen owns shares of WAM Research Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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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