Is it possible to get an ASX dividend share with a yield of more than 10% that isn’t a value trap?

Well, that’s the question we’ll be looking at today. When an ASX dividend share offers to pay you back your invested money in just dividends in 10 years or less, alarm bells might be ringing. After all, Westpac Banking Corp (ASX: WBC) technically still has a raw trailing dividend yield of 11.59% – yet no one believes that the ASX bank will pull that out of its hat in 2020, given it’s already ‘deferred’ its interim dividend payments.

But here are 2 ASX shares that I think can offer investors a yield of more than 10% this year!

Fortescue Metals Group Limited (ASX: FMG)

Fortescue shares have been on an absolute tear recently – even making a new all-time high of $14 just this week. Why? Well, because the price of iron ore – Fortescue’s raison d’être – has exploded this week, climbing very close to US$100 a tonne. Production shutdowns in the Brazilian mining industry (which is another massive exporter of iron ore) have resulted in a supply squeeze for iron. Since Fortescue has an extraction cost per tonne between US$12 and US$14, the company is a cash-printing machine at these levels.

That means it should be well placed to reward shareholders handsomely this year with dividend payments. Fortescue has a trialling dividend yield of 7.36% – or 10.51% grossed-up with full franking. If iron ore continues to stay at the current price, this yield might even go higher for Fortescue shareholders. 

WAM Research Limited (ASX: WAX)

WAM Research is another dividend powerhouse, but this share is actually a listed investment company (LIC) specialising in small- to mid-cap ASX growth shares. Some of its current holdings include TPG Telecom Ltd (ASX: TPM), Aristocrat Leisure Limited (ASX: ALL) and REA Group Limited (ASX: REA).

This LIC has been a stellar performer over the last decade, returning an average of 13.4% per annum since 2010. A fair chunk of these returns have hailed from dividend payments, with WAM Research increasing its dividend every year since 2008. 

On current prices, WAM Research shares are offering a raw dividend yield of 7.3% – which grosses-up to 10.43% with full franking credits. If you’re worried that this yield is unsustainable, consider this. WAM Research’s last interim dividend payment was 4.9 cents per share. The company had over 26 cents per share in its profit reserve at the end of last month, meaning this dividend looks well-covered for at least the next 2 years.

Foolish takeaway

Normally, when a company boasts a dividend yield of more than 10%, it’s a sign to run for the hills. But I think these 2 ASX dividend shares are exceptions to this rule and have the potential to be valuable income shares to hold in 2020 and beyond. 

More reading

• Top brokers name 3 ASX shares to sell next week
• How to make a $50,000 passive income with ASX shares
• ASX 200 drops 1% on Friday
• My 3 best ASX dividend shares to buy right now
• ASX 200 drops 0.4%, Chinese threat to Australian iron

Motley Fool contributor Sebastian Bowen owns shares of WAM Research Limited. The Motley Fool Australia has recommended REA Group Limited. 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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Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that caught my eye are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

Fortescue Metals Group Limited (ASX: FMG)

According to a note out of Citi, its analysts have downgraded this iron ore producer’s shares to a sell rating with an increased price target of $11.10. Citi has responded to a lift in iron ore prices by upgrading its earnings and dividends estimates for Fortescue. And while it notes that its 88 cents per share dividend estimate for FY 2021 implies a generous yield, it expects a meaningful decline in iron ore prices to lead to a sharp dividend cut in FY 2022. In light of this, it believes the company’s valuation is getting stretched now. The Fortescue share price ended the week at $13.58.

TechnologyOne Ltd (ASX: TNE)

Analysts at UBS have downgraded this enterprise software company’s shares to a sell rating but lifted the price target on them to $8.20. According to the note, TechnologyOne’s half year update fell a touch short of its expectations last week. As a result, the broker suspects it might be hard for the company to deliver on its full year expectations now. All in all, it doesn’t believe the company’s shares deserve to trade on such a high earnings multiple. TechnologyOne’s shares finished the week at $9.91.

Wagners Holding Company Ltd (ASX: WGN)

A note out of the Macquarie equities desk reveals that its analysts have retained their underperform rating and slashed the price target on this building materials company’s shares to 80 cents. The broker notes that the Supreme Court of Queensland has delivered its judgement on its pricing dispute with Boral Limited (ASX: BLD). While the orders will remain confidential for a couple of weeks, Macquarie doesn’t appear optimistic. In addition to this, Macquarie has concerns over Wagners’ outlook and thus remains bearish. The Wagners share price was trading at 82 cents at the close of play on Friday.

More reading

• Here are 2 ASX dividend shares with yields over 10%
• How to make a $50,000 passive income with ASX shares
• What to watch on the ASX 200 next week
• ASX 200 drops 1% on Friday
• ASX 200 drops 0.4%, Chinese threat to Australian iron

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 Top brokers name 3 ASX shares to sell next week appeared first on Motley Fool Australia.

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A $50,000 passive income sounds like a dream, but can you really achieve it with ASX shares?

How to make a $50,000 passive income with ASX shares

I think making an annual $50,000 passive income via ASX shares is very achievable, but it won’t happen overnight. $50,000 is a sizeable amount of money and it takes disciplined savings and savvy investing to deliver.

Sure, you could put all of your money into hot stocks like Altium Limited (ASX: ALU) and then sell your stake slowly, but that’s a risky strategy. If you’re going to retire and live off your investments, a diversified portfolio is the key.

Let’s assume we invest in a mix of ASX dividend shares. I like the look of Scentre Group (ASX: SCG), Fortescue Metals Group Limited (ASX: FMG) and Harvey Norman Holdings Limited (ASX: HVN) right now.

While dividend yields can be misleading at the moment, let’s assume these yields are constant for now. Scentre shares are yielding 8.46% while Fortescue and Harvey Norman are paying 7.35% and 11.22% respectively, at the time of writing.

This means an equally-weighted portfolio comprising these 3 ASX shares would deliver a yield of 9.01% per annum. Let’s say a 25-year-old investor starts with nothing and invests $10,000 per year until they’re 65.

If that 9.01% remains constant throughout their 40-year investing journey, their portfolio would be worth over $3 million by age 65. The yearly distributions would total a whopping $305,249 (before tax). That’s much more than $50,000 of passive income, but I wouldn’t necessarily bank on this. 

If you’re at or approaching retirement age, it’s unlikely you’ll want all of your money invested in ASX shares. Shares can offer great returns, but they also come with higher risk than safer investments like bonds and cash.

A blended portfolio, on the other hand, still has the potential to generate a $50,000 income from ASX shares whilst better protecting your net worth. And given we’re after $50,000, not $300,000, your real return could be much lower than 9% per annum while still achieving your goal.

Foolish takeaway

Clearly, our example investor’s scenario has been simplified down. But the fact is that compounding returns work and are the key to building a $50,000 income using ASX shares for your future retirement.

More reading

• Here are 2 ASX dividend shares with yields over 10%
• Top brokers name 3 ASX shares to sell next week
• Have $500 to invest? Then buy these 5 ASX 200 shares immediately
• How to reduce your work to part-time using ASX shares
• ASX 200 drops 1% on Friday

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Scentre 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.

The post How to make a $50,000 passive income with ASX shares appeared first on Motley Fool Australia.

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