Tag: Motley Fool Australia

2020 is shaping up to be a year to forget when it comes to dividends. We have seen ASX companies cut dividends across the board this year, including from some ASX income heavyweights.

Dividends from ASX banks like Westpac Banking Corp (ASX: WBC) have gone up in smoke. It’s the same with distributions from real estate investment trusts (REITs) like Scentre Group (ASX: SCG) and would-be dividend aristocrat Ramsay Health Care Limited (ASX: RHC).

It’s a brave new world for income investors, that’s for sure.

That’s why I think a great strategy for investors seeking dividend income in 2020 is to go for diversification. With an exchange-traded fund (ETF), you can buy dozens (if not hundreds) of income-paying companies within one share!

Here are 3 ideas to get you started:

Vanguard Australian Shares High Yield ETF (ASX: VHY)

This ETF from Vanguard aims to hold a large basket of ASX dividend-paying shares. It currently holds 62 ASX-listed companies, which include the big banks, BHP Group Ltd (ASX: BHP), Telstra Corporation Ltd (ASX: TLS) and Wesfarmers Ltd (ASX: WES).

Although many of these holdings will be pulling back on their dividends in 2020, many will not as well. All in all, I see this ETF as a collection of some of the best yielders on the ASX.

SPDR S&P Global Dividend Fund (ASX: WDIV)

This ETF can be used as a great compliment to VHY as it invests in top-notch dividend payers from around the world.

WDIV only holds stocks that have maintained or increased their dividends over the past 10 years – which is a great filter in my view. There are many defensive companies here, ranging from the utilities sector to energy, REITs and ‘sin stocks’.

WDIV has a trailing dividend yield of 6.33%, which isn’t bad at all and will provide a solid stream of passive income. Such diversity can do wonders for an ASX-dominated dividend portfolio in my view and as such, I think this ETF is one that any income investors should consider.

iShares S&P/ASX 20 ETF (ASX: ILC)

This ETF from BlackRock is very simple – it simply holds the top 20 companies on the ASX. CSL Limited (ASX: CSL) is, of course, the top holding, followed by the big 4 banks, BHP and Woolworths Group Ltd (ASX: WOW).

So why this ETF over VHY? Well, it’s a more conservative choice in that it is defined by holding the largest companies on the ASX – all of which pay dividends. It is a little concentrated in the banking and resources sectors, but the largest holding, CSL, is a notable exception. ILC boasts a trailing dividend yield of 5.52%, which also comes with some franking credits.

More reading

• 3 top ASX dividend shares to buy right now
• 3 ASX dividend shares I would buy immediately
• How to earn more frequent retirement income from ASX shares
• 3 top ASX dividend shares to buy during the COVID-19 crisis
• How to generate a passive income of $50,000 a year with ASX shares

Motley Fool contributor Sebastian Bowen owns shares of SPDR S&P Global Dividend Fund and Vanguard Australian Shares High Yield Etf. 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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Short-sellers are stepping up their attack on ASX shares over the past month even as the S&P/ASX 200 Index (Index:^AXJO) recovers from the coronavirus fallout.

The total number of shares short-sold jumped by 3% over the past month and is close to 4% more than at the start of this calendar year.

It’s usually a good idea to keep an eye on what these bearish traders are doing as they tend to be more sophisticated than the average investor.

Short-sellers are those who borrow a stock to sell on-market with the aim of buying it back at a lower price later to profit from the difference.

Shorting the BNPL sector

One of the interesting things short-sellers appear to be betting against are the rivals to Afterpay Ltd (ASX: APT) even as they stepped back from shorting the buy now pay later (BNPL) industry leader.

Those who shorted Afterpay are probably nursing big losses as the stock hit a record high on Monday.

This might have convinced them to go after its weaker rivals instead as the sector, which is linked to discretionary spending, is under a cloud. The ones most likely to use such services are more likely to be impacted by job losses.

Targeting the weaker players

Based on the latest ASIC short-selling data that runs to May 5 (the data is always a week old), short-interest in Zip Co Ltd (ASX: Z1P) and FlexiGroup Limited (ASX: FXL) jumped.

Zip Co’s short-interest, which is the percentage of Zip shares in the hands of short-sellers, rose 165 basis points (1.65 percentage points) to 8.9%.

Flexigroup isn’t far behind. The proportion of its shares being shorted increased 136 basis points to 1.9%.

It looks like Zip Co is the more popular short target with close to 10% of its shares being shorted. That’s a relatively high percentage.

Biggest increase in shorts

However, these shares aren’t the flavour of the month as short-sellers have been more aggressively increasing their bearish bets against other ASX stocks.

Top of the list is gold miner KIRKLAND/IDR UNRESTR (ASX: KLA) with short-interest in the stock surging 758 basis points over the month from nothing. Short-sellers may be using it as a hedge against the rallying gold price.

Retailers are a moving target

Second on the list is embattled department store group Myer Holdings Ltd (ASX: MYR). Short-interest in the stock jumped 437 basis points to just over 14%.

I suspect the sudden and sharp rally in Myer shares on Monday may be due to short-covering where short-sellers rush to buy back the stock to close their position.

The reopening of Myer stores and the easing of social restrictions is triggering a re-rating in ASX retail stocks.

Holding a large short position in Myer must be causing pain with the stock surging 44% over the past month.

The short trade in the sector could become a widow maker if short-sellers don’t go after the right candidates.

More reading

• 3 top-notch ASX shares on my May watchlist
• Is this ASX healthcare share about to soar?
• Where to invest $10,000 in ASX 200 shares immediately
• Leading brokers name 3 ASX shares to sell today
• ASX 200 sinks 1.3%: Big four banks drag ASX lower & Altium issues sales warning

Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended FlexiGroup 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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How many ASX shares should you have in your portfolio?

It’s a tricky question, to be sure! That’s partly because everyone has a different answer. Some people are happy with 4, others have more than 40.

Some experts will tell you to have as many as you can for diversification’s sake, others like Warren Buffett will tell you that “diversification is protection against ignorance. It makes little sense if you know what you are doing.”

So what is one to do?

What does diversification bring to a portfolio?

Diversification is a term bandied around a little much these days, in my opinion. But the basic idea is that diversification helps you reduce risk. The more companies, industries, and even countries you are invested across, the less likely a significant event in any one of these will derail your returns.

Take the recent shocks we’ve seen in the oil markets as an example. If someone just had Woodside Petroleum Limited (ASX: WPL), Beach Energy Ltd (ASX: BPT) and Caltex Australia Limited (ASX: CTX) in their portfolio, they would have been smashed by the descent of oil prices into negative territory. Having shares outside the oil sector would have helped insulate this portfolio considerably.

Of course, if you diversify too much, you will just end up with a return similar to what a broad market index fund will give you.

How many shares are enough?

Keeping all this in mind, having a share portfolio of 15 shares would be ideal (in my opinion), but anywhere between 10-20 is probably the right balance for most investors.

But just having 15 isn’t enough. If you had 15 oil companies or 15 banks, it wouldn’t be a diversified portfolio at all.

So a further caveat: having 15 companies could be considered ideal, but so is making sure this stable covers a broad swathe of at least the Australian economy is also important.

And if you still feel your portfolio is still too concentrated, you can easily bump up your diversification with an exchange-traded fund (ETF) or two.

But don’t let an arbitrary share limit dictate how you choose to invest if you don’t wish. There’s nothing wrong with owning one company just like Warren Buffett (provided you know it inside out). Equally, there’s nothing wrong with owning 40 if it helps you sleep better at night. Investing is a personal journey and one that you have to do your own way!

More reading

• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 Weekly Wrap: New ASX bull run continues
• 5 things to watch on the ASX 200 on Monday
• What to watch on the ASX 200 next week
• 5 things to watch on the ASX 200 on Friday

Motley Fool contributor Sebastian Bowen 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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May has proved an interesting month so far on the S&P/ASX 200 Index (ASX: XJO). After the lows we saw in March, May has (thus far) continued the positive momentum we saw throughout April – with a few hiccups along the way (today being one of them).

So here are the 3 ASX shares that I’ve got on my May watchlist. I’m hoping for a great price to buy them this month, but we’ll have to wait and see if that eventuates!

BetaShares Nasdaq 100 ETF (ASX: NDQ)

This exchange-traded fund (ETF) from BetaShares tracks the 200 largest companies in the US Nasdaq exchange, which is known for its ‘tech-heavy’ composition. Its largest holdings are names like Microsoft, Amazon.com, Apple and Alphabet (Google), so you know you are getting quality here.

NDQ has rebounded strongly since the lows we saw in March, so I’m waiting for a dip for this one. Nonetheless, it’s a fund I would love to see in my portfolio this May. Most of the companies that are shaping and changing the world can be found within this ETF and so I think it’s a great long-term growth investment.

Afterpay Ltd (ASX: APT)

I’m still kicking myself that I missed out on loading up on Afterpay shares when the buy now, pay later pioneer was (ever so briefly) under $9 a share in March. Today, it stands at over $41 after we heard last week that Chinese giant, Tencent Holdings has acquired a 5% stake in Afterpay.

I’m not finding the current price too exciting, but I would love to buy into Afterpay if the price dips back down to anywhere near the levels we saw in March. I think this company is one of the most exciting growth stories on the ASX and I’m hoping to get a slice of it this May.

MFF Capital Investments Ltd (ASX: MFF)

MFF is a listed investment company (LIC) that focuses on the top companies in the US. I love that its top holdings are the payment giants Mastercard and Visa, 2 companies that are growing at breakneck speed. Other holdings include Wells Fargo and Microsoft. As such, I think this company is a great share to use for portfolio diversification and long-term capital growth.

I already have some MFF shares but would love to pick up some more if the price dips back down this month. March saw lows around $2.20 – a level I would love to see again for a buying opportunity in May.

More reading

• Short sellers are going after Afterpay’s rivals and these ASX shares
• Is this ASX healthcare share about to soar?
• Where to invest $10,000 in ASX 200 shares immediately
• Leading brokers name 3 ASX shares to sell today
• ASX 200 sinks 1.3%: Big four banks drag ASX lower & Altium issues sales warning

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Alphabet (A shares), Magellan Flagship Fund Ltd, Mastercard, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Mastercard, and Visa. The Motley Fool Australia owns shares of and has recommended BETANASDAQ ETF UNITS. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Alphabet (A shares) and Mastercard. 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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I think that high-yield dividend shares can be detrimental to building your wealth, particularly if you choose the wrong ones.

Reason 1: Tax

Taxes are the subscription fee for being part of a good society, but you don’t need to be handing over extra when you don’t need to.

Unless you’re in a low tax bracket (such as within superannuation or a low income earner), any dividends you receive may be taxed at around a third or even more.

If you get a sustainable 10% return from a high-yield dividend share then you could be handing over a third of it to the tax man each year. Compare that to a 10% capital growth from something like Xero Limited (ASX: XRO) or A2 Milk Company Ltd (ASX: A2M) – you don’t pay any tax unless you actually sell the share. I think it makes a big difference over time.

Obviously there’s the benefit of dividend franking credits which reduces your taxes owed, but you still have to make up the extra tax unless you’re in that lower tax bracket position where the franking credit rate is higher than your tax rate.

Sometimes paying the tax can be worth it if you just want a high net yield from your investments and you can find a reliable dividend payer.

Reason 2: It may be a bad investment

Having a high-yield dividend share shouldn’t mean you overlook all the other areas of a business. Does it have a good balance sheet? Is there good prospects for the business and its industry as a whole?

A high yield may mean little growth, which suggests the business could be mature or challenged.

If it’s a bad investment then you could easily suffer wealth destruction from falling earnings and a falling share price. And the dividend could be cut. There’s not much point going for the big dividend if the dividend is then cut a year or two later.

Just look what has happened to Telstra Corporation Ltd (ASX: TLS) and National Australia Bank Ltd (ASX: NAB). Lower share prices and lower dividends compared to a few years ago. Over time it’s the ‘growth’ businesses that will keep paying larger dividends so you can receive a good yield on cost. Plenty of high yield dividend shares are actually yield traps, particularly in these coronavirus times. 

What high yield dividend shares are worth buying?

It depends how high of a yield you want to go and if you don’t mind paying the elevated levels of tax.

Rural Funds Group (ASX: RFF) has a FY21 distribution yield of 5.9%.

Brickworks Limited (ASX: BKW) has a grossed-up dividend yield of 6.3%.

WAM Microcap Limited (ASX: WMI) has a grossed-up dividend yield of 7.4%.

Future Generation Investment Company Ltd (ASX: FGX) has a grossed-up dividend yield of 7.9%.

WAM Research Limited (ASX: WAX) has a grossed-up dividend yield of 10.9%.

Naos Emerging Opportunities Company Ltd (ASX: NCC) has a grossed-up dividend yield of 13.25%.

At the current prices I’d probably be happy to go for WAM Microcap, Brickworks and Future Generation as my preferred three high yield dividend share picks because the yields aren’t too high. But all of them could be good long-term picks for dividends.

More reading

• Is it time to buy ASX small caps for your portfolio?
• 3 must-read investing books for new investors
• UBS picks the real ASX winners from the COVID-19 grocery boom
• ASX 200 sinks 1.3%: Big four banks drag ASX lower & Altium issues sales warning
• These were the top 10 ASX 200 shares over the last year

Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO, RURALFUNDS STAPLED, and WAM MICRO FPO. The Motley Fool Australia owns shares of and has recommended Brickworks, RURALFUNDS STAPLED, and Telstra Limited. The Motley Fool Australia owns shares of A2 Milk and Xero. 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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Paying off a mortgage is one of the primary financial goals many Australians have – if not the sole one.

A home is often a family’s largest asset, so paying off the mortgage is a big step towards financial freedom and living a comfortable retirement.

Unfortunately, it remains a massive task to accomplish – even with interest rates at their lowest levels in history.

So here are three tips for paying off your mortgage faster, so you can spend your hard-earned money on more important things!

Get a better rate

Even though interest rates are close to zero, many banks haven’t fully passed on these cuts. That’s why (if you haven’t already), you should pick up the phone today and ask Commonwealth Bank of Australia (ASX: CBA), or whichever bank you have your loan through, if you’re getting the lowest rate you can. Even shaving 0.2% off your mortgage rate can save you thousands of dollars over the lifespan of the loan.

Who would you rather have that extra dough – you, or your bank? Exactly!

Pay more than the minimum repayments

A principal-and-interest loan sees interest-dominated repayments required at the start of the loan, which taper over time as you pay off more of the principal. That’s why making extra repayments on top of the minimum amount required can dramatically shave off years (and interest charges) from your loan. It can also help protect you from the possibility of higher interest rates down the road.

If you’re in your first year of a 25-year mortgage, every extra $100 you pay is $100 you won’t pay interest on for 25 years. How’s that for a return?!

Invest alongside your loan

Many people save investing for when the mortgage is paid off, but there’s a better way to do it if you’re careful.

Say you have an interest rate of 2.5% on your mortgage. If you invest in an ASX dividend share that pays you 4% a year in dividends, you can use this extra passive income to help you make additional payments down the road, all whilst holding an income-producing asset.

Of course, this option isn’t for the faint of heart, as ASX investments can fluctuate wildly in value and some won’t always pay consistent dividends. But if used prudently, I think this is a path anyone with a mortgage can use to their advantage.

More reading

• Meet the growing ASX large cap that’s beating the COVID-19 slowdown
• 3 ASX dividend kings to buy and hold forever
• ASX 200 sinks 1.3%: Big four banks drag ASX lower & Altium issues sales warning
• Reality bites: Broker warns CBA shares to underperform this week
• 3 ASX 200 shares to watch this week

Motley Fool contributor Sebastian Bowen 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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I’ve been keeping a close eye on what substantial shareholders have been doing recently.

Substantial shareholders are shareholders that hold 5% or more of a company’s shares. These tend to be large investors, asset managers, and investment funds. These shareholders are obliged to update the market when they make any changes to their holdings.

As a result, I feel investors should look to use these notices to their advantage. After all, they show where the smart money is going.

Two notices that have caught my eye are summarised below:

Marley Spoon AG (ASX: MMM)

According to a change of interests of substantial holder notice, Perennial Value Management has been increasing its stake in this meal kit delivery company. The notice reveals that over the last four weeks the fund manager has picked up just over 2 million Marley Spoon shares. This has increased its holding in the company to approximately 12.5 million shares, which is the equivalent of a 7.88% stake.

Marley Spoon is being seen as a big winner from the pandemic due to more eating at home. This has led to a surge in demand for its meal kit subscriptions, sending its shares hurtling higher. Since this time in March, Marley Spoon’s shares have climbed 400%. This fund manager appears to believe its shares can continue climbing higher.

Monash IVF Group Ltd (ASX: MVF)

A notice of initial substantial holder reveals that Challenger Ltd (ASX: CGF) has been buying this fertility treatment company’s shares. Over the last six weeks the annuities company has picked up 20,687,831 shares in Monash IVF. This represents a 5.74% stake in the company.

Challenger may believe that recent share price weakness is a buying opportunity now that lockdowns are easing and fertility treatment services are up and running again. The Monash IVF share price is down 60% from its 52-week high.

More reading

• Is it time to invest in shares or wait on the sidelines?
• ASX shares and investing trends that could boom post COVID-19
• How to build your first ASX share portfolio
• Why this ASX small-cap share should be on everyone’s watchlist
• Is the Challenger share price a buy for the 11% dividend yield?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger 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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The CSR Limited (ASX: CSR) share price has lifted 10% today after the building materials supplier reported a 61% surge in profits. In its results for the year ended 31 March 2020, CSR revealed statutory net profit after tax of $125.3 million, up from $78 million for the year ended March 2019. 

What does CSR do?

CSR is a leading building products brand in Australia and New Zealand. Its products are used in both residential and commercial construction and include Gyprock plasterboard and Bradford insulation.

CSR is a participant in a joint venture aluminium smelter and also generates earnings from a property division that develops surplus former manufacturing sites and industrial land for sale.

CSR’s results 

CSR reported solid full-year results despite an expected decline in residential construction markets. Aluminium division earnings increased 63% to $60 million following a decline in the Australian dollar and lower input costs. 

Revenue was down 6% in building products to $1.6 billion reflecting lower residential construction activity. No material transactions were recorded in the property division during the year. Group earnings were down 18% reflecting the lower building products result and timing of property transactions. 

Statutory net profit after tax (NPAT) from continuing operations declined 10% to $125 million. Total statutory NPAT increased 61% to $125.3 million from $78 million the previous year. The prior year’s figure included impairment charges from the Viridian glass business which was sold in 2019. 

Financial position 

CSR ended the March quarter with net cash of $95 million and total debt facilities of $520 million. It has paused its on-market share buyback, having purchased $69 million of the $100 million planned. No final dividend will be paid for the year ended March 2020. Total dividends of 14 cents were paid during the year, down from 26 cents in the year ended March 2019.

Significant capital expenditure was incurred in the year due to the $75 million expansion of Hebel, CSR’s autoclaved aerated concrete (AAC) business. Hebel is the only manufacturer of AAC panels in Australia and New Zealand. 

Outlook

CSR is managing its liquidity and optimising profitability via cost controls. A prudent approach to cost management is being taken – working hours are being reduced where appropriate and non-essential expenditure ceased or deferred. 

A high degree of uncertainty in the current economic environment means plans have been implemented to adjust to demand changes across the network. CSR is monitoring a range of lead indicators to allow for an adjustment in production and cost profile as early as possible. 

More reading

• ASX 200 sinks 1.3%: Big four banks drag ASX lower & Altium issues sales warning
• Why CSR, Kogan, Premier Investments, & ResMed shares are storming higher
• Brokers may be upgrading this ASX stock even as it delivered a plunge in profits
• The latest ASX shares to be downgraded by top brokers
• Why you should buy this ASX 200 stock even after it suspended its dividend today

Motley Fool contributor Kate O’Brien 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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Is it time to buy ASX small caps for your portfolio?

Most Aussie investors have a lot of exposure to the large blue chips on the ASX like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and Telstra Corporation Ltd (ASX: TLS). Whether that’s direct holding, an exchange-traded fund (ETF), a listed investment company (LIC) or in your super fund.

Sadly these businesses have fairly limited growth prospects and don’t look like they’re going to make strong total returns from here.

But ASX small caps offer a different opportunity. It’s much easier for a business to double its revenue from $25 million to $50 million than it is for a business to double revenue from $250 million to $500 million. The law of numbers makes it hard for businesses to keep compounding strongly unless they’re growing globally or have multiple product lines.

Another benefit of ASX small caps is the lower valuation. Not many investors are looking at small businesses. They don’t make the headlines and people may see them as too risky. A lower valuation is obviously attractive for returns, particularly if it’s growing at a good pace.

Once you leave the ASX 200, there’s a large group of small businesses that you wouldn’t ever invest in like the speculative mining shares. But there’s a group of ASX small caps that could be on their way to being the next ASX mid-caps. These are the ones that could make us great returns.

Which ASX small caps are worth buying?

I used to like National Veterinary Care a lot, until it was taken over. I reckon that Pushpay Holdings Ltd (ASX: PPH) and Bubs Australia Ltd (ASX: BUB) are on their way to becoming good success stories. Shares like MNF Group Ltd (ASX: MNF) are seeing a surge in demand due to the coronavirus. Duxton Water Ltd (ASX: D2O) could be another to look into for differentiated returns, a growing dividend and the large discount to net assets. 

Finding those ASX small caps where you can see the profit margins and operating leverage rising over time is very attractive.

You have to do a lot of work to be a proficient small cap investor, but it can be very rewarding. If you’re not sure you have the time or skill then you could perhaps choose quality fund managers to do the ASX small cap investing for you like WAM Microcap Limited (ASX: WMI). In normal times the WAM team can generate impressive returns.

More reading

• Why high yield dividend shares can be detrimental to your wealth
• The Pushpay share price is up 70% in 2020: Why I would still invest
• Top ASX Dividend Stock Picks for May 2020
• 3 ASX growth shares to buy immediately with $3,000
• 3 high quality ASX shares for a retirement portfolio

Tristan Harrison owns shares of DUXTON FPO and WAM MICRO FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of MNF Group Limited. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO, PUSHPAY FPO NZX, and Telstra Limited. The Motley Fool Australia has recommended DUXTON FPO and MNF 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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It certainly is a difficult time to be an income investor. Not only are interest rates at record lows, but many popular dividend shares are deferring or cancelling their payouts due to the pandemic.

While this is disappointing, I believe the selloff of traditional dividend favourites has created an opportunity for income investors that can afford to be patient.

Two top dividend shares which I think will offer generous dividend yields in FY 2021 and beyond are listed below:

Sydney Airport Holdings Pty Ltd (ASX: SYD)

There’s no doubt that Sydney Airport’s terminals are going to be quiet for the next few months. But domestic tourism will pick up in due course and international tourism will follow thereafter. It may take time before its earnings rebound to the same levels as FY 2019, but it will happen gradually.

I expect Sydney Airport to be in a position to pay a 29 cents per share distribution in FY 2021, before lifting it to a more normal 37 cents per share in FY 2022. This represents forward yields of 5.15% and 6.6%, respectively, over the two years. In light of this and the potential capital returns, I think it could prove to be a top long term option for investors.

Transurban Group (ASX: TCL)

Another option for income investors to consider buying is Transurban. Due to the sharp reduction in traffic volumes on its roads during the pandemic, I suspect that it might decide against paying a final distribution in FY 2020. Or if it does pay one, it is likely to be reduced materially from a year earlier.

But I wouldn’t let that put you off investing. I expect its toll roads to start their recovery in the coming months and for traffic volumes to slowly return to relatively normal levels by mid to late 2021. In light of this, I estimate that its shares offer forward distribution yields of 3.4% and 4.5% for FY 2021 and FY 2022, respectively. Once again, I think this makes it well worth being patient with its shares.

More reading

• In a post-COVID world, could Australia be the next superpower?
• Top ASX Dividend Stock Picks for May 2020
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Transurban 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.

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