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Next month’s ASX profit reporting season should be a relatively pleasing one. But there’s one large cap stock that’s facing the pump.

The ASX stock in the hotseat is the AMP Limited (ASX: AMP) share price, but it isn’t for what you might think!

It’s not so much profits but progress on its restructuring that will be dogging management in February.

Clock ticking on AMP share price

Citigroup believes AMP is running out of time to show progress. And that the best way for the embattled wealth manager to create value is to sell some of its key assets.

Macquarie Group Ltd (ASX: MQG) is touted as the most likely buyer. But after its acquisition of Waddell & Reed Financial, Australia’s home-grown investment bank may have too much on its plate to make a bid.

“Still, this is the business which likely most attracts current conditional bidder Ares (at least in part), with Macquarie (and possibly others) still potentially interested in AMP Bank,” said Citi.

“Consequently our proposed route of spinning off these two businesses, realising substantial capital and retaining the harder to sell, but heritage, AWM business may still be possible.

“This would also leave AMP still in control of its ultimate destiny, something we presume the AMP Board would find attractive.”

February reporting season fast approaches

However, the clock is ticking. The broker believes the market may be running low on patience unless management can unveil some concrete plans with its upcoming results.

After all, investors have already been waiting four months. That’s from the time AMP announced it strategic review.

There’s a lot riding on the next update as it will likely trigger a sharp rally or a painful correction in the AMP share price.

AMP share price on edge

“As our current Positive Catalyst Watch indicates we continue to flag potential share price upside if the portfolio review is resolved positively,” added the broker.

“However, we continue to flag downside risk if the outcome of the portfolio review is that no bid eventuates and the status quo is maintain.”

Other M&A transactions to watch

AMP isn’t the only one under the merger and acquisition (M&A) spotlight, although it’s arguably under the most pressure to announce a favourable outcome.

The Coca-Cola Amatil Ltd (ASX: CCL) share price and WPP Aunz Ltd (ASX: WPP) are under takeover offers.

Others that are likely to be selling assets in 2021 include the Boral Limited (ASX: BLD) share price and BlueScope Steel Limited (ASX: BSL) share price.

More reading

• ASX 200 drops 1.1%
• Citi sees bigger takeover offer coming for Coca-Cola Amatil (ASX:CCL) share price
• ASX 200 drops lower
• These were the worst performers on the ASX 200 last week
• Are we heading for a new ASX resources ‘supercycle’?

Motley Fool contributor Brendon Lau owns shares of AMP Limited and BlueScope Steel Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The ASX bull market continues its golden run into the new year, but there’s one sector at risk of falling out of the race.

The S&P/ASX 200 Index (Index:^AXJO) ended the last trading session of the week with a 0.7% gain with the benchmark adding another 1% in value in 2021.

The nearer-term outlook for ASX stocks is bright. But the analysts at Macquarie Group Ltd (ASX: MQG) don’t quite feel the same way about ASX health insurance stocks.

ASX stocks downgraded by Macquarie

The broker warns that the two listed players in this field are facing a number of headwinds and downgraded the Medibank Private Ltd (ASX: MPL) share price and NIB Holdings Limited (ASX: NHF) share price.

“2021 will be a year of structural pressures for the Private Health Insurance industry,” said the broker.

“Although MPL and NHF will likely fare better than peers we do not expect them to be immune.

“Following a significant re-rating and the tougher outlook, the sector no longer appears undervalued.”

Claims are on the rise

There are three main areas of concern highlighted by Macquarie. First is the claims catchup. Health Insurers experienced a lower level of claims during the months of COVID-19 lockdowns last year.

Industry data indicated that the rebound in claims could happen sooner than what the two companies have been guiding.

Another headwind driving the downgrade

The other issue is the level of “participation”, which reflects the number of people holding private health insurance.

The participation rate jumped in the June quarter of last year as customers retained cover during the peak of the pandemic. At the same time, new customers were also added during the period.

“Our analysis also showed as COVID-19 risks subsided across most of the country, normal industry participation declines (~20-30bps per qtr) recommenced,” explained Macquarie.

“Looking forward, participation declines could accelerate as economic stimulus rolls off, although it is unlikely to be a material step down.”

No insurance against politics

Lastly, the next federal election could prove to be a headwind for the sector. Opposition leader Anthony Albanese is rallying his party for a possible election that he thinks could come later this year.

While Albanese has publicly dumped Labor’s so called “retiree tax” policy, he said nothing about capping private health insurance premiums.

The cap was dangled to the electorate at the last election, and he could use this carrot again to restrict premium increases to 2% a year.

Foolish takeaway

Macquarie believes it is “highly likely” that Federal Labor will have a similar policy this year. The federal election must be called before 21^st May 2022.

The broker cut its recommendation on the Medibank share price to “underperform” from “neutral”, and NIB share price to “neutral” from “outperform”.

Macquarie’s 12-month price target on Medibank and NIB is $2.70 and $6.10 a share, respectively.

More reading

• These were the worst performing ASX 200 shares last week
• ASX 200 rises 0.7% on Friday
• Mesoblast (ASX:MSB) share price could be facing more pressure in 2021
• Citi picks the best international share markets that can beat the ASX in 2021
• The Energy Resources (ASX:ERA) share price is falling. Here’s why.

Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended NIB Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Analysts at Bell Potter have been busy finding ASX shares from several industries that they believe are best placed to have a strong 2021.

On this occasion, I’m going to look at the healthcare sector. Here are a couple of shares they rate highly:

AVITA Medical Inc (ASX: AVH)

The first healthcare share that Bell Potter rates highly is AVITA Medical. It notes that the medical device company’s shares have fallen heavily after sales of its Recell spray on skin technology suffered during the pandemic. However, it feels this is a buying opportunity, especially with its sales starting to recover now. Bell Potter has a speculative buy rating and $15.00 price target on its shares.

It commented: “As the US economy returns to normal levels of activity as is anticipated over the course of 2021, revenues are expected to continue to increase rapidly. There are no competing innovative therapies to the Recell technology in the treatment of burns.”

It also notes that management is looking to expand Recell’s use into other lucrative markets.

“The company is proceeding with its program to expand into adjacent markets for the treatment of vitiligo, soft tissue injury (trauma wounds) and paediatric burns. Clinical trials are under way in all three indications with the highest levels of interest in the vitiligo indication. We expect an approval in this indication in later calendar year 2022 or early 2023.”

Starpharma Holdings Limited (ASX: SPL)

Another healthcare share the broker likes is dendrimer product developer, Starpharma. Bell Potter has a speculative buy rating and $2.20 price target on its shares.

Its analysts commented: “It’s already generating revenue through its VivaGel franchise and is also working on improved formulations of leading cancer drugs both internally and with external partners including AstraZeneca.”

The broker also notes that Starpharma has a COVID-19 product which has a lot of potential.

It explained: “COVID-19 has taken centre stage for the company, with the rapid development and reformulation of the active used in its VivaGel products into an anti-viral nasal spray called Viraleze for COVID-19 and other viral infections. The company is leveraging its huge dataset on safety/toxicology on the active to fast track the path to market, with the product expected to be on market in Europe in 1QCY21, less than 12 months since the company first started working on it.”

“Market research indicates the product has wide appeal with its broad anti-viral capabilities, one of the key driving factors of enthusiasm around the product and we expect it will be complementary to other prevention strategies like vaccines & PPE (such as masks) in the fight against COVID-19,” the broker added.

More reading

• Are these 4 ASX medical shares set for a healthy 2021?
• Why did the Avita (ASX:AVH) share price dive 60% in 2020?
• Why AVITA, IDP Education, Over the Wire, & Viva Energy shares are dropping lower
• Starpharma (ASX:SPL) share price dips despite positive update
• These are the 10 most shorted shares on the ASX

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Avita Medical Limited and Starpharma Holdings Limited. The Motley Fool Australia has recommended Avita Medical Limited and Starpharma Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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With interest rates unlikely to improve from their record lows any time soon, it’s very fortunate that the Australian share market has dividend shares offering investors very generous yields.

Two ASX shares dividend shares with above-average yields are listed below. Here’s what you need to know about them:

Fortescue Metals Group Limited (ASX: FMG)

The first dividend share with a generous yield is one of the world’s leading iron ore producers, Fortescue.

Over the last few years the mining giant’s shares have generated staggering returns for investors. This has been underpinned by its significant cost reductions, an increase in its grades, production growth, and favourable iron ore prices.

In respect to the latter, the spot iron ore price climbed to a whopping US$170.60 a tonne last week. This compares incredibly favourably to Fortescue’s current C1 costs of US$12.74 per wet metric tonne.

Given the margins the company is enjoying and its strong balance sheet, it has been tipped to reward shareholders with bumper dividends in FY 2021.

Macquarie, for example, is forecasting a fully franked $2.61 per share dividend over the next 12 months. Based on the current Fortescue share price, this equates to a sizeable 10% dividend yield.

Rural Funds Group (ASX: RFF)

Another dividend share with a generous forward yield is Rural Funds. It is an agricultural property-focused real estate investment trust (REIT) which owns a diversified portfolio of high quality assets. These assets are leased to experienced agricultural operators such as wine giant Treasury Wine Estates Ltd (ASX: TWE) on very long leases.

At the end of FY 2020, the company owned 61 properties with a combined value of $1 billion and a weighted average lease expiry (WALE) of 10.9 years. From these leases, it was generating adjusted funds from operations (AFFO) of 11.7 cents per share.

Thanks to fixed rental increases, the company intends to grow its distribution by its 4% per annum target rate in FY 2021. This will mean an 11.28 cents per share distribution for shareholders. Based on the latest Rural Funds share price, this represents a 4.3% yield.

More reading

• Why Atomos, Corporate Travel Management, Fortescue, & Nick Scali are dropping lower
• 3 ASX mining shares hitting 52-week highs today
• BHP (ASX:BHP) share price storms to new high
• 3 highest yielding ASX dividend shares
• Do ASX mining companies carry the Australian share market?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Treasury Wine Estates Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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There are a few reasons why the Commonwealth Bank of Australia (ASX: CBA) share price could be a buy.

Recent financial results

CBA said that its FY20 result reflected the impact of COVID-19 on customers and the economy, however the bank said its performance remained strong due to disciplined execution of the strategy and it continued to improve its balance sheet.

FY20 statutory net profit after tax (NPAT) dropped 12.4% to $9.63 billion and cash NPAT declined 11.3% to $7.3 billion. The loan impairment expense increased by $1.3 billion to $2.5 billion as the loan loss rate increased to 33 basis points. The net interest margin (NIM) declined by another 2 basis points to 2.07% because of the impact of lower interest rates.

The common equity tier 1 (CET1) capital ratio was 11.6%, which was above APRA’s unquestionably strong benchmark of 10.5%.

In terms of the amount of COVID-19 related loan deferrals, at 31 July 2020 there were 135,000 home loans being deferred representing 8% of total accounts (down from 154,000 at the peak) and there were 59,000 business loans still being deferred which represented 15% of total balances, down from 86,000 at the peak. At the end of October, the number of home loan deferrals had reduced to 45,600.

The latest financial result was the FY21 first quarter trading update which showed that CBA generated $1.9 billion of statutory NPAT and $1.8 billion of cash profit, down 16% on the prior corresponding period. CBA said that income was stable, but expenses (excluding customer remediation) were up 2%.

In that latest quarter, the CET1 ratio continued to strengthen as it grew 20 basis points to 11.8%.

What are the reasons that the CBA share price could be a buy?

Rhett Kessler from the Pengana Australian Equities Fund, of Pengana Capital Group Ltd (ASX: PCG), thinks that the banks have a positive outlook.

The first reason is that there’s accelerating home loan growth supported by low interest rates and first homeowner support. Indeed, at the moment the official Australian interest rate set by the Reserve Bank of Australia is just 0.25% right now.

The second reason, or group of reasons, is that there’s a supportive federal budget, improving housing finance approvals and house prices are holding up better than expected.

The third reason was that there has been a meaningful reduction in loan deferrals.

The final reason is that there is lower than anticipated loss provisioning.

Those factors were key for causing Pengana to increase the exposure to the major banks.

Valuation

According to the ASX, CBA currently has a market capitalisation of $150 billion with the CBA share price just over $85.

Looking at the (externally provided) earnings estimates for CBA shares, it’s valued at 21x FY21’s estimated earnings. Looking further ahead, it’s valued at 18x FY23’s estimated earnings.

There are also estimates for the dividends that CBA may pay shareholders. In FY21 it could pay an annual dividend of $2.75 per share, equating to a grossed-up dividend yield of 4.6% at the current share price. In FY23 it’s projected to pay a dividend of $3.23 per share, equating to a grossed-up dividend yield of 5.4%.

More reading

• Why ANZ, Westpac, and the rest of the big four are storming higher today
• ASX 200 drops 1.1%
• What strong jobs data means for ASX 200 shares
• Here’s which ASX bank share this leading broker thinks you should buy
• ASX 200 up 0.8%: CBA storms higher, Link sinks, tech shares rise

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Costco Wholesale Corporation (NASDAQ: COST) and McDonald’s Corp (NYSE: MCD) are venerable companies that have proven popular with consumers over many years. They have become dominant through their focus on providing value to customers.

Last year’s results took divergent paths, which each stock reflected. Costco’s stock price increased by 28%, besting the S&P 500 Index (INDEXSP: .INX) 16%. Meanwhile, McDonald’s shares underperformed the overall index with a more than 8% gain.

But the market typically looks at short-term results. To figure out which is the better long-term stock investment, it is time to dig deeper into each company’s prospects.

A popular destination

With more than 39,000 establishments in more than 100 countries, McDonald’s golden arches are perhaps the restaurant industry’s most recognisable symbol. However, it doesn’t own the majority of restaurants. Rather, it franchises 93% of them, in which the franchisees pay McDonald’s an upfront fee plus an ongoing percentage of its sales. It is also a landlord in many instances, so it also receives rent.

Heading into 2020, McDonald’s, with its inexpensive food and quick service, was doing well. Its 2019 comps rose by 5.9%, with higher guest counts contributing one percentage point. This was due to changes management implemented, such as all-day breakfast, new menu items, and a focus on the “3 Ds”– digital, delivery, and drive-thru. The company’s operating income grew to $9.1 billion, 27% higher than 2015’s $7.1 billion.

Last year, with governments imposing social distancing guidelines, was a different story. Still, results showed an improvement in the third quarter as governments relaxed restrictions, and its previous push of the 3 Ds proved fortuitous. Comps were down 2.2%, but they did better each month.

While cases are surging, creating some near-term uncertainty as governments and people react to contain the virus, McDonald’s long-term prospects look promising with its affordable menu that it is constantly tinkering with to adapt to consumer preferences (including reintroducing the popular McRib for a limited time), and the company continues to push the 3 Ds.

The company’s dividend track record, raising it for 44 consecutive years since its first payout in 1976, is impressive. This includes boosting December’s payment by 3% to $1.29. The stock’s dividend yield is 2.4%.

Offering members a good value

Costco is not your typical retailer. It operates warehouses that offer a variety of goods sold in bulk and services at lower prices than members can typically find elsewhere. It charges members to shop there, and they happily sign up and stay on. The number of paid memberships has grown from 47.6 million to 58.1 million over the last five years. It consistently has a nearly a 90% renewal rate worldwide.

With positive same-store sales (comps) for many years and increased profitability, Costco is executing its plan to serve members by offering them high-quality merchandise at low prices. Over the last five years, its operating income grew by nearly 50% to $5.4 billion.

The company got off to a good start in 2021, too. For its first fiscal quarter, which ended on Nov. 22, comps were up by 17.1% after excluding gasoline price changes and foreign currency exchange translations. Costco’s operating income increased by 35% to $1.4 billion.

Costco’s success is leading management to continue opening new warehouses. Historically, it added 20 to 25 clubs annually. It ended last year with 795 and opened eight in the first quarter, with plans to add 20 to 22 for the year.

The company has also built an impressive track record of raising dividends annually since its initial payment in 2004. Its 0.7% dividend yield pales in comparison to some companies, but it has bright growth prospects. Costco has also paid large, special dividends to shareholders every few years, including a $10 payment last month.

The decision

Choosing between Costco and McDonald’s is a tough call. Both are well recognised, popular destinations. For me, Costco comes out ahead due to its ability to draw in members based on its offerings, which have produced consistently improving results.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Better buy: Amazon vs Costco
• Is McDonald’s stock a buy?
• Costco’s big earnings beat points to further upside

Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Costco Wholesale. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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If you’re looking to make some new investments in January, then you might want to take a look at the ASX shares listed below.

Here’s why these three ASX shares have been named as buys:

Appen Ltd (ASX: APX)

The first share to look at is Appen. It is a leading developer of high-quality, human annotated datasets for machine learning and artificial intelligence (AI). Appen’s team of over one million contractors prepare or create the data for the machine learning models of some of the largest tech companies. This has previously included Apple, with its virtual assistant, Siri.

While trading conditions are tough because of the pandemic, analysts at Macquarie remain positive on Appen and have an outperform rating and $43.00 price target on its shares. The broker appears confident the company will bounce back once the pandemic passes. They also believe the company is well-placed to benefit over the long term from the AI tailwind.

IDP Education Ltd (ASX: IEL)

Another share to look at is IDP Education. It is a provider of international student placement and English language testing services.

While the pandemic has hit the company very hard, it has a very strong balance sheet and looks well-placed to ride out the storm. This is something that many of its competitors have struggled to do. As a result, the company has been tipped to come out of the crisis in an even stronger position. This could lead to an acceleration in its growth once the pandemic passes.

Analysts at Morgans like the company and have an add rating and $25.09 price target on its shares. The broker believes the company is well-placed for growth once trading conditions return to normal.

Pushpay Holdings Group Ltd (ASX: PPH)

Pushpay is a leading donor management and community engagement platform provider for the faith sector.

While this may be a niche market, it certainly is a very lucrative one. The company is aiming to win a 50% share of the medium to large US church market in the future, which represents a US$1 billion opportunity. Given that FY 2020’s revenue came in at US$129.8 million (up 32% year on year) , this shows just how long a runway for growth it has over the 2020s.

Due to the quality of its platform and last year’s US$87.5 million acquisition of church management system provider Church Community Builder, management appears optimistic it will get there.

One broker that also appears confident is Goldman Sachs. It has a conviction buy rating and ~$2.59 price target on its shares.

More reading

• 2 compelling ASX shares to buy in January
• 2 fantastic ASX growth shares that could beat the market in 2021
• 3 mid cap shares hitting 1-month lows on the ASX today
• Brokers name 3 ASX shares to buy right now
• The Pushpay (ASX:PPH) share price jumped 80% in 2020: Can it go higher?

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd, Idp Education Pty Ltd, and PUSHPAY FPO NZX. The Motley Fool Australia has recommended PUSHPAY FPO NZX. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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There are some compelling ASX shares to look at in January 2021.

These are two businesses liked by experts:

Pacific Current Group Ltd (ASX: PAC)

Pacific Current describes itself as a business that is a global multi-boutique asset management business committed to partnering with exceptional investment managers. It combines capital — offered through bespoke economic structures — with strategic business development to help businesses grow.

Dean Fremder of Perpetual Limited (ASX: PPT) said when Pacific Current shares were a bit lower: “The stock’s really cheap. It is on nine times earnings. It’s growing earnings at double digits, so more than 10% a year. It’s paying a 6.5% fully franked yield. And most excitingly, we think they can pay out a much larger portion of their earnings as dividends. We see no reason, given the surplus franking credits they have on the balance sheet, they can’t be paying a 10 or 11% fully franked yield in the next 12 months. So, really excited about that one.”

In FY20 the ASX share grew underlying earnings per share (EPS) by 18% and it increased the dividend by 40%. In the three months to 30 September 2020, Pacific Current said that its funds under management (FUM) grew by a further 14% to $106.4 billion, largely driven by the investment in fund manager GQG.

Pacific Current is hoping to launch a new fund to invest external funds into other investment managers – it would earn a management fee of this fund. Pacific Current is also hoping that its managers will be able to win more investment mandates as life (hopefully) starts returning to normal in 2021.

According to Commsec, the Pacific Current share price is valued at 10x FY22’s estimated earnings.  

Pushpay Holdings Ltd (ASX: PPH)

Fund manager Ben Griffiths from Eley Griffiths said: “Over the last 12 months it has become clear Pushpay is at an inflection point for both cashflow and earnings. Under the stewardship of CEO Bruce Gordon, Pushpay has transitioned from a founder-led investment phase into an optimize/monetization phase. What is more surprising is the very conservative nature of the accounts (a rarity in small cap tech, outside Iress Ltd (ASX: IRE)). We believe the next few years for Pushpay will be rewarding and that COVID-19 will accelerate the already entrenched trend to digital giving/engagement from cash.”

The electronic donation ASX share has a lower price/earnings (p/e) ratio than some other technology shares. According to Commsec, the Pushpay share price is valued at 23x FY23’s estimated earnings.

In the FY21 interim result Pushpay reported that its operating revenue for the six months to 30 September 2020 increased by 53% to US$85.6 million. Pushpay is hoping to achieve US$1 billion of annual revenue down the track. Pushpay is expecting to achieve continued revenue growth as it continues to execute on its strategy and gain further market share in the US faith sector.

That HY21 result also showed expanding operating leverage. The gross profit margin went up from 65% to 68%. Whilst operating revenue grew 53%, operating expenses only grew by 16%. This helped the earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) margin increase from 17% to 31%. Management expect “significant operating leverage to accrue as operating revenue continues to increase, while growth in total operating expenses remains low.”

Pushpay now expects EBTIDAF to be in the range of US$54 million to US$58 million for FY21, which would be growth of more than 100%.

Over the long term, Pushpay is targeting a market share of over 50% in the medium and large church segments in the US.

The ASX share also continues to evaluate additional potential strategic acquisitions that broaden the current proposition and would add significant value to the current business.

More reading

• 2 fantastic ASX growth shares that could beat the market in 2021
• The Pushpay (ASX:PPH) share price jumped 80% in 2020: Can it go higher?
• 3 great ASX tech shares to buy
• Got money to invest for income? Here are 3 ASX dividend shares
• 2 outstanding ASX shares to buy and hold

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX. The Motley Fool Australia has recommended IRESS Limited and PUSHPAY FPO NZX. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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It has been a tough few years for income investors who have had to contend with ultra low rates.

Unfortunately, according to the economics team from Westpac Banking Corp (ASX: WBC), it could still be some time before rates start to improve.

What did Westpac say?

According to the latest Westpac Weekly economic report, the bank is forecasting the cash rate to stay on hold at 0.1% until at least the end of 2022.

And given how rate increases are likely to be gradual when they finally happen, it could be several more years before rates get back to previous levels.

In light of this, it looks as though dividend shares will remain the best way to generate a passive income for some time to come.

But which dividend shares should you buy? One highly rated ASX dividend shares is named below:

Telstra Corporation Ltd (ASX: TLS)

Telstra is a dividend share that a large number of brokers are rating as buys right now. They appear to believe the worst is behind the telco giant after a number of years of struggles because of the NBN rollout.

This is especially the case given the success it is having at cutting costs and simplifying its business with the T22 strategy. Furthermore, the arrival of 5G internet, the easing of the NBN headwind, and the company’s proposal to split into three separate entities are being seen as big positives for Telstra’s prospects.

Goldman Sachs is a big fan of the company and recently reiterated its buy rating and $3.60 price target on its shares.

It has also reaffirmed its forecast for a 16 cents per share fully franked dividend in FY 2021 and beyond. Based on the current Telstra share price of $3.02, this would provide investors with a generous fully franked 5.3% dividend yield.

More reading

• ASX 200 up 0.4%: Afterpay & Zip charge higher, NAB rises, Harvey Norman hits new high
• Do Australian consumers care about chaos?
• Why ANZ, Westpac, and the rest of the big four are storming higher today
• ASX 200 up 1.55%: ANZ & Westpac surge higher, Afterpay & Xero tumble
• 5 things to watch on the ASX 200 on Thursday

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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There are some ASX dividend shares that have kept growing the dividend to shareholders even during 2020.

That may be attractive to income investors in a world where interest rates are so low.

Here are three options within the ASX 200:

Bapcor Ltd (ASX: BAP)

Bapcor currently has a grossed-up dividend yield of 3.25%.

This business is the largest auto parts business in Australia and New Zealand. It operates a number of different brands including Burson, Autobarn, Precision Automotive equipment, Truck and Trailer Parts, Truckline, Midas and ABS.

Bapcor’s FY20 final dividend was maintained at 9.5 cents per share, but thanks to a half-year increase the full year dividend was increased by 2.9% to 17.5 cents. That was despite underlying pro forma net profit being down 5.5%.

The ASX dividend share recently gave a FY21 trading update. For the five months to the end of November 2020, revenue was up 26%. Net profit after tax (NPAT) achieved operating leverage from lower expenses in areas like travel and other areas of discretionary spending, as well as lower interest rates and the contribution from Truckline which wasn’t in the prior corresponding period.

In the first half of FY21 Bapcor thinks revenue will grow by 25% and net profit will rise by at least 50%.

Wilson Asset Management is one of the fund managers that likes Bapcor for its rebounding performance, its strong market position and its ability to potentially make more acquisitions with a strong balance sheet.

APA Group (ASX: APA)

APA currently has a distribution yield of 5.2%.

This ASX dividend share owns a large network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). APA owns, or manages and operates, a portfolio of assets and delivers half the nation’s natural gas usage.

APA has increased its distribution every year since just before the GFC, which is a long record for the ASX.

The business funds its distribution from its annual operating cashflow, which is steadily rising as it finishes more energy infrastructure projects. One recently-announced plan is to build a new pipeline in WA and then link that with existing pipelines.

The Australian government has commented that gas could be part of the recovery from COVID-19 impacts.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Patts currently has a grossed-up dividend yield of 2.9%.

This ASX dividend share has the longest dividend growth streak on the ASX. It has grown its dividend every year since 2000.

Soul Patts funds its dividend from the investment income (dividends, distributions and interest) from its portfolio of assets.

It has substantial holdings in listed businesses like TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Bki Investment Co Ltd (ASX: BKI), Milton Corporation Limited (ASX: MLT), Palla Pharma Ltd (ASX: PAL), Clover Corporation Limited (ASX: CLV) and Australian Pharmaceutical Industries Ltd (ASX: API).

Soul Patts also has an unlisted portfolio of businesses. It has investments in sectors like agriculture, financial services, resources and swimming schools.

The ASX dividend share has a long-term investment style, whilst also usually looking at defensive assets and investing with a contrarian nature. Not only is the investing long-term, but the employees are also long-term.

More than 40 employees have worked for the company for over 50 years. Five generations of the Pattinson family have served the company, as have three generations of the Dixson, Spence, Rowe and Letters families.

More reading

• Top brokers name 3 ASX shares to buy today
• How ASX shares in the automotive sector outperformed the market in 2020
• Got money to invest for income? Here are 3 ASX dividend shares
• These were the worst performing ASX 200 shares last week
• 2 ASX dividend shares to buy for 2021

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Bapcor and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of APA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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