Analysts at Goldman Sachs have been looking over the iron ore market amid the weakening demand backdrop for the steel making ingredient.

The good news for iron ore producers such as BHP Group Ltd (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG), and Rio Tinto Limited (ASX: RIO), is that the investment bank doesn’t expect prices to fall to the levels we saw during the last downturn in 2014 to 2016.

How low will prices go?

Goldman Sachs expects the iron ore market to move into surplus in late May/June on higher Australian and Brazil shipments and lower (ex-China) steel demand.

It suspects this will lead to the iron ore price retracing to US$70.00 per tonne, before rebounding to US$85 per tonne in the fourth quarter on an expected recovery in global steel demand.

Its analysts offered five reasons why this is expected to be the case:

Reason 1. Goldman notes that the market was in a large surplus position (30-60Mtpa) during 2014-2016 due to the ramp-up of new supply from the iron ore majors. Whereas, this time the market was in a deficit before the pandemic.

Reason 2. In addition to this, the exit of high cost iron ore production (from China, SE Asia, India and West Africa) was slow during 2014-2016. It notes that higher cost supply did not return from 2017-2019 despite high prices, and reserve depletion is only accelerating amongst Tier 2&3 producers.

Reason 3. Another reason is that the majors brought on >300Mt of new capacity from 2014 to 2016. However, mining giants Rio Tinto and Vale have been struggling to increase their production in 2019-2020 due to ongoing operational issues.

Reason 4. Goldman also feels that the rise in Induction Furnace (IF) capacity in China that used scrap impacted iron ore demand previously. However, these IFs were phased out from 2016 and have been replaced by large blast furnaces which has boosted iron ore demand.

Reason 5. Finally, in 2014-2015 a policy-driven downturn in the Chinese property market impacted steel and iron ore demand significantly. This time around the Chinese property market is rebounding with improving sales and starts.

Overall, this should ensure that prices remain high and BHP, Fortescue, and Rio Tinto continue to generate significant free cash flows over the next 12 months.

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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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Dividends have become something of a scarce commodity on the ASX these days. Many formerly ‘reliable’ ASX shares have deferred or cancelled their dividend payments in 2020 – and we’re only in May! We may well see many more ASX companies follow suit before the year is out.

So with that in mind, here are 3 ASX shares I would buy for my dividend income throughout the rest of 2020 and beyond!

BHP Group Ltd (ASX: BHP)

BHP has long been a solid dividend payer for ASX income investors, but I think this mining giant will be especially useful as we navigate through 2020. That’s because BHP will likely be fairly cashed-up and ready to reward their shareholders, unlike most ASX companies.

BHP’s largest operations are iron ore mines. Iron ore is a commodity whose price has held up remarkably well in 2020 and at the time of writing, is still over US$90 a tonne. These high prices should be enough to keep BHP’s dividend spigots open and the cash flowing in 2020 and beyond.

WAM Research Limited (ASX: WAX)

WAM Research is one of my favourite ASX dividend shares. It’s a listed investment company (LIC) that invests in small to mid-cap ASX shares that it perceives as undervalued. It uses the profits from these investments to fund its generous dividend. On current prices, WAM Research shares are carrying a trailing dividend of 7.6%, or 10.86% grossed-up.

Even though the company’s share price usually trades at a healthy premium to its underlying value, this yield will make it worthwhile for many income investors out there!

AGL Energy Limited (ASX: AGL)

AGL is an energy giant with significant electricity generation and transmission assets across the country as well as a gas distribution network. It’s one of the largest power companies in Australia.

Utilities like AGL are highly defensive (we need electricity all the time, after all) and thus, can provide a high and relatively ‘safe’ dividend stream (if there is such a thing). On current prices, AGL shares are offering a trailing dividend yield of 6.8%, partially franked.

Yes, AGL might be hit in the short-term by people deferring bill payments and other hardships related to the coronavirus shutdowns but, still, I think this company would be a solid ASX dividend share to have in 2020 and beyond.

More reading

• Goldman Sachs names 5 reasons iron ore prices won’t crash
• How to invest $1,000 like Warren Buffett today
• Safe dividend stocks to buy today for the COVID-19 world
• Why diversification is important and how to diversify your portfolio with ASX shares
• Why high yield dividend shares can be detrimental to your wealth

Motley Fool contributor Sebastian Bowen owns shares of WAM Research Limited. 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 Looking for dividend income? Try these 3 ASX shares appeared first on Motley Fool Australia.

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