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There are some ASX shares that could be poised to recover from the impacts of COVID-19 in 2021.

Many different sectors were particularly hurt in 2020. Travel, shopping centres, cinemas, casinos and so on were all hit.

However, there are some ASX shares that could recover some more of the lost ground in 2021:

Sydney Airport Holdings Pty Ltd (ASX: SYD)

Sydney Airport is one of the largest infrastructure ASX shares.

Dion Hershan from Yarra Capital Management recently wrote that the ‘stay at home’ shares have outperformed the ‘out and about’ businesses by 21% since the market peak back in February. He thinks that with highly effective COVID-19 vaccines on the horizon and better treatment protocols, mobility will improve and confidence will rebound.

Yarra Capital has been looking for high quality businesses which have been de-rated to more appealing valuations through the sell-off. The fund manager said that it’s overweight to Sydney Airport as well other infrastructure shares like Transurban Group (ASX: TCL) and Atlas Arteria Group (ASX: ALX).

Sydney Airport recently told the market that there would be no distribution paid for the full year result because of the continued significant impact of COVID-19 on the business performance of the airport over the second half of the calendar year.

In terms of traffic, November 2020 showed the domestic passenger market is recovering for the ASX share, but international passenger numbers are still down heavily.

Total passengers were down 90.6% in November 2020 to 350,000. Domestic passengers were down 87.1% to 308,000 whilst international passenger numbers were down 96.9% to 42,000.

The modest recovery in domestic traffic in the month was driven by demand for NSW and Victoria interstate travel. Unrestricted travel between NSW and Victoria was permitted from 23 November 2020. The downturn in international passenger traffic is expected to persist until government travel restrictions are eased.

EML Payments Ltd (ASX: EML)

This ASX share has a number of different payment services for clients to use. EML Payments has general purpose reloadable offerings such as gaming payouts with white label gaming cards, salary packaging cards, commission payouts and rewards programs. EML Payments also offers physical gift cards, shopping centre gift cards and digital gift cards. Finally, it offers virtual account numbers.

The company boasts of a high retention rate with 99% of clients being retained through the three years to 2020. It also says there are high levels of barriers to entry, with necessary regulatory and compliance across the world being one of the main elements. It also has a high level of IT capability, with platforms for customer services.

Its gift and incentive volumes recovered significantly in the first quarter of FY21 after the initial impacts of COVID-19. Total FY21 first quarter revenue grew 20%, compared to the fourth quarter of FY20, to $40.6 million.

Earnings before interest, tax, depreciation and amortisation (EBITDA) generated in the FY21 first quarter was $10 million, which was 69% higher than the fourth quarter of FY20.

At the current EML Payments share price it’s valued at 30x FY23’s estimated earnings according to Commsec numbers.  

Audinate Group Ltd (ASX: AD8)

Audinate is an ASX share that owns the Dante platform, which distributes audio signals across computer networks. The company boasts about being the lead supplier of digital and audio video networking for the professional AV industry.

Some of Audinate’s main customer groups, being live sound and large events, are still being impacted because of COVID-19 impacts.

However, the recovery is on course within the sectors of corporate conferences and higher education. There has been a steady improvement in trading conditions since May.

In the first quarter of FY21, it generated revenue of US$5.2 million and EBITDA of AU$0.3 million.

More reading

• 4 leading ASX growth shares to buy for 2021
• These were the best performing ASX 200 shares last week
• Is the Sydney Airport (ASX:SYD) share price in the buy zone?
• Why Blackmores, Service Stream, Sydney Airport, & Webjet shares are dropping lower
• ASX 200 up 0.7%: Zip capital raising, A2 Milk trading halt, Sydney Airport dividend update

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 and recommends EML Payments. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AUDINATEGL FPO. The Motley Fool Australia has recommended AUDINATEGL FPO and EML Payments. 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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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:

AGL Energy Limited (ASX: AGL)

According to a note out of UBS, its analysts have downgraded this energy retailer’s shares to a sell rating and cut the price target on them to $12.25. The broker believes that AGL is going to experience a sustained reduction in its earnings over the coming years. This is due to margin pressure from softening wholesale electricity prices and the push towards renewable energy. UBS notes that the majority of AGL’s electricity generation is powered by coal. The AGL share price ended the week at $13.22.

Commonwealth Bank of Australia (ASX: CBA)

A note out of Morgans reveals that its analysts have retained their reduce rating but lifted the price target on this banking giant’s shares to $64.00. According to the note, following the removal of dividend restrictions by APRA, the broker believes that Commonwealth Bank could increase its payout ratio to upwards of 75% over the coming years. While this would be a positive for dividend seekers, it isn’t enough for a change of rating. Morgans continues to believe its shares are overvalued and notes that other banks offer better value for money currently. The Commonwealth Bank share price was fetching $83.16 at Friday’s close.

Transurban Group (ASX: TCL)

Analysts at Citi have retained their sell rating and $12.83 price target on this toll road operator’s shares following an update last week. That update revealed that the company has sold a 50% stake in its Greater Washington assets to AustralianSuper and two other funds. While Citi sees positives in the move and expects it to reduce its leverage, it believes the reduction in earnings could put pressure on dividends until the funds are redeployed elsewhere. The Transurban share price ended the week at $14.15.

More reading

• How to invest in US shares in 2021
• AGL (ASX:AGL) shuts coal power unit after serious injury
• ASX 200 rises on Thursday
• ASX stock of the day: Why are Netwealth (ASX:NWL) shares up 7%?
• Here’s what is driving the Transurban (ASX:TCL) share price higher today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Transurban 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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This article is about four ASX dividend shares that pay consistent payments to investors, even during difficult times:

Rural Funds Group (ASX: RFF)

Rural Funds is a real estate investment trust (REIT) that owns farmland across different agricultural sectors including cattle, almonds, macadamias, vineyards and cropping (sugar and cotton).

The REIT was actually one of the top FY21 picks by broker Bell Potter which liked the high-quality tenants and steadily-growing asset values of the farms.

Those farms are spread across a variety of states and climactic conditions for useful diversification.

The ASX dividend share aims to grow its distribution by 4% per annum. This is funded by contracted rental increases and productivity improvement investments at its farms.

At the current Rural Funds share price, it offers a FY21 distribution yield of 4.3%.

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

Soul Patts is one of the oldest listed businesses in the country. It has been listed in Australia since 1903. 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.

It’s an investment conglomerate that has exposure to many sectors including telecommunications, resources, building products, pharmacies, agriculture, financial services and swimming schools.

Some of its holdings include the following ASX shares: TPG Telecom Ltd (ASX: TPG), Clover Corporation Limited (ASX: CLV), Australian Pharmaceutical Industries Ltd (ASX: API), Bki Investment Co Ltd (ASX: BKI), Milton Corporation Limited (ASX: MLT) and Palla Pharma Ltd (ASX: PAL).

The business aims to take long-term positions in the businesses that it invests in, often with a contrarian approach.

In terms of being a reliable ASX dividend share, it has increased its dividend every year for 20 years in a row. That’s the longest growth record on the ASX.

Soul Patts pays for that dividend from the dividends and distributions received from its investments, after paying for its own operating expenses.

At the current Soul Patts share price it offers a grossed-up dividend yield of 2.8%.

Brickworks Limited (ASX: BKW)

Brickworks is one of the largest building products businesses in the country. It produces and sells a number of different products such as bricks, masonry, paving, precast and roofing. It’s also the market-leading brickmaker in the northeast of the US.

The business hasn’t cut its dividend for over 40 years, so it also has one of the longest dividend records. But it doesn’t have the consecutive dividend growth streak like Soul Patts.

However, it is actually invested in Soul Patts shares. Brickworks owns 39.4% of Soul Patts, which provides Brickworks with a growing stream of dividends and the capital value is steadily climbing over time as well.

It’s the Soul Patts dividends and the distributions from the joint venture (JV) property trust with Goodman Group (ASX: GMG) that entirely funds Brickworks’ dividend.

This JV structure is based on Brickworks selling surplus operational land into the trust at market value and Goodman funding the infrastructure works, to created serviced land ready for development. Balancing payments may be required to ensure a fair contribution towards the value of the fully serviced land. Once a lease pre-commitment is secured, the serviced land can then be used as security, with debt funding used to cover the cost of constructing the facilities.

This property trust is currently building huge warehouses for Amazon and Coles Group Ltd (ASX: COL) which, when completed, will see the trust’s gross assets rise above $3 billion and the net rental distributions to Brickworks are expected to rise by more than 25%.

At the current Brickworks share price it offers a grossed-up dividend yield of 4.3%.

APA Group (ASX: APA)

APA 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.

This ASX dividend share funds its distributions from the operating cashflow produced by its assets. APA regularly announces new plans to grow its asset base further. It plans to build a new pipeline in WA and that will link up with its existing pipeline.

APA recently announced it is going to increase its interim distribution by 4.3%, bringing the current distribution to $0.51 per unit, which equates to a distribution yield of 5% at the current APA share price. It has increased its distribution every year for about a decade and a half.

More reading

• 2 blue chip ASX dividend shares to buy next week
• 3 reasons why Brickworks (ASX:BKW) shares are a compelling idea
• 2 ASX dividend shares for 2021’s zero interest rate world
• ASX 200 rises 0.7% on Wednesday
• Here’s what these popular ASX dividend shares plan to pay investors in 2021

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The three ASX shares in this article could be some of the most interesting businesses to monitor in 2021.

Here are those three ASX stocks:

Pacific Current Group Ltd (ASX: PAC)

Pacific Current is a business that takes stakes in investment managers. The company then helps with its resources to grow the business. It can use capital, institutional distribution capabilities and operational expertise to help partners. It has around 15 boutique asset managers globally.

Dean Fremder of Perpetual Limited (ASX: PPT) said when Pacific Current shares were approximately 10% lower: “The stock’s really cheap. It’s 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 its underlying earnings per share (EPS) by 18% to $0.51. This was driven by funds under management (FUM) reaching $93.3 billion at 30 June 2020. FUM increased 52% when excluding the boutiques that were sold or acquired during the year. Fund manager GQG grew strongly with FUM rising from US$25.1 billion to US$44.6 billion.

In the quarter for the three months ending 30 September 2020 Pacific saw FUM grow by 14% to $106.4 billion. The vast majority of the FUM growth came from GQG.

According to estimates on Commsec, Pacific Current is valued at 9x FY23’s estimated earnings. It also has a grossed-up dividend yield of 8.3%.

Temple & Webster Group Ltd (ASX: TPW)

This ASX share is a furniture and homewares business that sells a wide variety of items through its online-only offering.

Temple & Webster has gained market share during this year as more shoppers move to online buying.

The company generated a lot of growth in FY20, it achieved revenue growth of 74% to $176.3 million. Second half revenue grew by 96% and fourth quarter revenue went up 130%.

Temple & Webster saw accelerated leverage in FY20 with earnings before interest, tax, depreciation and amortisation (EBITDA) soaring 483% to $8.5 million. The adjusted EBITDA margin improved from 2.5% to 5.3%.

However, growth didn’t stop in the first quarter of FY21, even when most of Australia was able to shop at physical retail locations again. At the time of its AGM, it reported year to date revenue growth of 138% in the year to 19 October 2020. October revenue growth was still more than 100%.

The FY21 first quarter EBITDA was $8.6 million, which was more than the whole of FY20. The contribution margin stayed ahead of its 15% target and customer satisfaction remains high with a net promoter score of around 70% and newer customers continue to perform better than historical comparisons.

The ASX share’s management is focused heavily on growth. The company said that it’s committed to a high growth strategy to take advantage of the structural shift towards online, capitalising on both organic and inorganic opportunities.

At the current Temple & Webster share price it’s valued at 35x FY22’s estimated earnings.

Pushpay Holdings Ltd (ASX: PPH)

Pushpay is an ASX share that’s exposed to the growing theme of payments shifting from cash to digital.

The idea behind Pushpay is that it helps connect the church with the congregation with tools like livestreaming. It helps facilitate electronic donations to large and medium US churches. The business is aiming for a 50% market share of this sector. This should translate into around US$1 billion of revenue.

This ASX share combines revenue growth with rising profit margins. The gross margin increased from 65% to 68% in the interim FY21 result.

Pushpay is also showing that its new combined offering is resonating with customers. ChurchStaq, the service which combines the features of both Pushpay and Church Community Builder, is quickly convincing customers to switch to that offering.

In FY21 it is expecting to generate earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) of between US$54 million to US$58 million.

At the current Pushpay share price it’s valued at 31x FY22’s estimated earnings.

More reading

• 4 leading ASX growth shares to buy for 2021
• These are the 7 best ASX retail shares in 2020
• 3 exciting ASX tech shares to buy
• Why Mesoblast, Pilbara Minerals, Pushpay, & Retail Food Group shares are dropping lower
• Why the Pushpay (ASX:PPH) share price is tumbling lower today

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 and Temple & Webster Group Ltd. The Motley Fool Australia has recommended PUSHPAY FPO NZX and Temple & Webster Group Ltd. 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 last few months have been jam-packed with new companies hitting the ASX boards after completing their IPOs.

Here’s a summary of a few recent IPOs and how they have performed since listing:

Adore Beauty Group Limited (ASX: ABY)

The Adore Beauty share price has been a disappointing performer since listing on the Australian share market. The online beauty products retailer’s shares ended the week at $5.29, which is down almost 22% from its IPO price of $6.75. 

This is despite the company recently revealing that it is on course to outperform its prospectus forecast for the first half of FY 2021. It is now expecting revenue to come in at approximately $95.2 million for the six months, which is 7% higher than its guidance of $89 million.

Management also advised that the uplift in revenue is expected to have a positive impact on its operating earnings forecast for the half. Though, no guidance has been provided at this stage.

MyDeal.com.au Limited (ASX: MYD)

The MyDeal.com.au share price ended the week at $1.22. This means the ecommerce company’s shares are up 22% from its IPO price of $1.00.

As with Adore Beauty, MyDeal’s operational performance has been very strong since listing. It recently released a trading update for November, which revealed record gross sales of $30 million for the month. This was up 192% year on year and 63% month on month.

In addition to this, the company advised that its active customers grew to a record 778,867 at the end of November. This was more than triple what it had a year earlier.  And pleasingly, more and more customers are returning for additional purchases. During the month of November, 52.9% of all transactions were from returning customers. This was up from 49.7% in the first quarter of FY 2021.

Nuix Limited (ASX: NXL)

The Nuix share price has been an exceptionally strong performer since listing on the ASX boards. The analytics software provider’s shares ended the week at $8.23, which is 55% higher than its offer price of $5.31 per share.

Nuix is a leading investigative analytics and intelligence software provider. This software has been used by customers around the world to process, normalise, index, enrich, and analyse data from a multitude of different sources. This includes for a number of important investigations such as the Panama Papers, the Banking Royal Commission, organised crime rings, corporate scandals, and terrorist activities.

Judging by its post-IPO rise, investors appear to believe its shares were great value based on its positive long term growth outlook.

More reading

• 2 highly rated mid cap ASX shares to buy for 2021
• Creso Pharma and Nuix were among the most traded shares on the ASX last week
• 2 exciting small cap ASX shares to watch closely in 2021
• Why Adairs, Link, Nuix, & Tyro shares are charging higher
• Red hot ASX IPOs that you might have missed from last week

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. 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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As I mentioned here earlier, the interest rates on offer with term deposits have fallen to such low levels, you would have to invest millions into them to earn a sufficient income.

In light of this, the share market looks set to remain the place to earn a passive income for the foreseeable future.

But which shares should you buy? Here are two ASX dividend shares that are rated as buys:

Australia and New Zealand Banking GrpLtd (ASX: ANZ)

While trading conditions in the banking sector are likely to remain relatively tough in the near term, they are certainly improving now the worst of the pandemic appears to be behind us. In addition to this, the relaxing of responsible lending rules and the improving housing market look set to give the banks a boost in 2021.

Another positive is that APRA has just announced that it will be removing its dividend restrictions on the banks. This means they will be free to pay out however much of their profits that they see fit in 2021.

It was because of this that Morgans reiterated its add rating and lifted its price target on the company’s shares to $26.00 last week. Morgans is forecasting a $1.27 per share dividend in FY 2021 and a $1.50 per share dividend in FY 2022. Based on the current ANZ share price, this represents 5.4% and 6.4% dividend yields, respectively.

Coles Group Ltd (ASX: COL)

This leading supermarket operator has been growing at a solid rate in recent years thanks to a combination of same store sales growth, store expansion, and its defensive qualities. The latter has been particularly helpful during the pandemic, with Coles reporting strong sales growth despite the economic downturn.

Pleasingly, this strong form has continued in FY 2021 even as COVID headwinds ease. This appears to have put Coles in a position to deliver a strong full year result next year.

Analysts at Citi appear confident this will be the case. The broker recently retained its buy rating and lifted the price target on the Coles share price to $21.20. It is also forecasting a 63.5 cents per share fully franked dividend this year. This represents a fully franked 3.5% dividend yield.

More reading

• Brokers name 3 ASX shares to buy right now
• 2 blue chip ASX dividend shares to buy
• 3 key takeaways from the ANZ annual general meeting
• ASX 200 up 1.1%: ANZ AGM, Resolute jumps, travel shares soar
• The Commonwealth Bank (ASX:CBA) share price is climbing higher today. Here’s why.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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 Mesoblast limited (ASX: MSB) share price has had an incredibly eventful year.

The stem cell-focused biotech company’s shares have been as high as $5.70 and as low as $1.02.

Today, the Mesoblast share price sits at $2.40 after crashing over 40% lower last week.

What is happening with the Mesoblast share price?

Mesoblast has been extremely busy this year with a number of key trials and applications.

This includes running a trial for remestemcel-L in the treatment of COVID-19 Acute Respiratory Distress Syndrome (ARDS), an application for remestemcel-L to treat paediatric patients with steroid-refractory acute graft versus host disease (SR-aGvHD), and a trial of rexlemestrocel-L in patients with advanced chronic heart failure.

Unfortunately, after so much promise, the company has fallen short on each occasion.

Advanced chronic heart failure.

Last week Mesoblast released the top-line results from the landmark DREAM-HF Phase 3 randomised controlled trial. This was a trial of its allogeneic cell therapy rexlemestrocel-L (REVASCOR) in 537 patients with advanced chronic heart failure.

Rexlemestrocel-L is a therapy that was being developed with Teva Pharmaceutical Industries until 2016, when the pharma giant walked away from the project due to weak data.

While the DREAM-HF trial showed a reduction in the incidence of heart attacks or strokes, there was no reduction in recurrent non-fatal decompensated heart failure events. This was the trial’s primary endpoint.

Remestemcel-L for paediatric SR-aGvHD.

In October the Mesoblast share price crashed lower after the US Food and Drug Administration (FDA) decided not to approve its remestemcel-L therapy for the treatment of paediatric patients with SR-aGvHD.

Instead, the FDA has requested that Mesoblast undertake at least one additional randomised, controlled study in adults and/or children. This is to provide further evidence of the effectiveness of remestemcel-L for SR-aGVHD.

Remestemcel-L for COVID-19 ARDS.

The icing on the cake for Mesoblast was last week’s announcement that its randomised controlled trial of remestemcel-L in ventilator-dependent patients with moderate to severe ARDS due to COVID-19 infection was a failure.

That announcement revealed that the Data Safety Monitoring Board (DSMB) has performed a third interim analysis on the trial’s first 180 patients.

And while the DSMB has reported that there were no safety concerns, importantly, it noted that the trial is unlikely to meet its 30-day mortality reduction endpoint at the planned 300 patient enrolment. In light of this, the DSMB effectively ended the trial early by instructing Mesoblast to recruit no further patients.

The company has suggested that changes in the treatment regimens for COVID-19 patients are to blame for the trial’s failure.

It explained: “During the course of the trial, as the pandemic has evolved, numerous changes in the treatment regimens for COVID-19 patients occurred, including both prior to and while on mechanical ventilation that may have an effect on the mortality endpoint in the trial.”

This trial data has now called into question the company’s deal with pharma giant Novartis that was potentially worth ~US$1.2 billion.

That agreement had an initial focus on the development of a treatment for ARDS, including that associated with COVID-19. Whether this focus still has a future, the two companies will no doubt have to work out in the coming weeks and months.

More reading

• These were the worst performing ASX 200 shares last week
• ASX 200 falls 1.2% on Friday
• ASX 200 down 0.6%: Mesoblast crashes lower, Qantas & Flight Centre tumble, NAB AGM
• Why Mesoblast, Paradigm, Qantas, & QBE shares are tumbling lower
• Why the Mesoblast (ASX:MSB) share price crashed 45% lower today

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. 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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Deciding which companies can be classed as the best shares to buy today is very subjective. However, they are likely to have solid financial positions and competitive advantages over their peers. This may allow them to deliver excellent financial performances over the long run.

Buying such companies when they trade at cheap prices can lead to impressive returns over the long run. They may be able to deliver market-beating returns that catalyse an investor’s portfolio. They could even help an investor to retire earlier than they had previously planned.

Buying today’s best shares

The stock market crash and uncertain weak economic outlook means that buying the best shares available could be even more important than usual. Indeed, some sectors face challenging operating conditions that could lead to disappointing financial performances over the coming months. Companies with solid balance sheets and competitive advantages over their peers may be better able to survive.

Such companies may also benefit to a greater extent from a likely economic recovery. For example, they may be able to invest in undervalued assets to strengthen their market positions. Or, they may be able to invest in adapting their business models to new customer tastes and trends. This may lead them to generate higher profit growth than their peers, which could produce higher valuations over the coming years.

Investing money at cheap prices

Investing money in the best shares at cheap prices can provide greater scope for capital appreciation. Many of today’s undervalued shares may face an extended period of time before they return to 2019 price levels.

However, the past performance of the stock market suggests that a sustained bull market is likely to take place in the coming years. This could lift investor sentiment towards a wide range of companies, and allow them to command higher valuations.

Buying stocks at cheap prices may also limit risks to some extent. Buying an asset for less than it is worth provides an investor with a margin of safety that can prove useful should the future turn out to be different than expectations. With a challenging current economic outlook, wide margins of safety could prove to be highly appealing to long-term investors.

Long-term return prospects

Of course, today’s best shares may not produce positive capital returns in the short run. There continues to be potential for a second stock market crash following the downturn in the first quarter of 2020, since risks such as Brexit and coronavirus are likely to remain in place.

However, an investor buying shares for their retirement portfolio may have sufficient time for cheap shares to recover. This may mean that now is a buying opportunity, since many of today’s best shares may gradually increase in value over the coming years as the world economy’s outlook improves.

More reading

• Buy Telstra (ASX:TLS) shares instead of term deposits
• How I’ll find the best dividend stocks for 2021
• 4 leading ASX growth shares to buy for 2021
• How to turn $20,000 into over $250,000 in 10 years with ASX shares
• These were the best performing ASX 200 shares last week

Motley Fool contributor Peter Stephens 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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At present, a 24-month term deposit from Australia and New Zealand Banking GrpLtd (ASX: ANZ) will provide investors with an interest rate of just 0.3%. This is broadly in line with what the rest of the banks are offering.

This means that a $100,000 investment would yield just $300 of interest each year.

Luckily, income investors don’t have to settle for that and there are a good number of shares offering vastly superior yields.

One of those is telco giant Telstra Corporation Ltd (ASX: TLS).

Why Telstra?

Telstra has been a big disappointment for income investors in recent years.

The NBN rollout created a significant gap in its earnings and led to a series of dividend cuts by the Telstra board.

The good news is that these cuts now appear to be over and a return to growth could be on the horizon soon.

This follows comments by the Telstra board at its annual general meeting which revealed that it would consider adjusting its dividend policy to maintain its 16 cents per share payout.

In addition to this, the company has recently announced plans to split its business into three separate entities. Management believes the restructure will allow Telstra to take advantage of potential monetisation opportunities for its infrastructure assets, which could create additional value for shareholders.

He commented: “The proposed restructure is one of the most significant in Telstra’s history and the largest corporate change since privatisation. It will unlock value in the company, improve the returns from the company’s assets and create further optionality for the future.”

Combined with the arrival of 5G, rational competition in the telco market, and its rampant cost cutting, things are looking a whole lot rosier for Telstra now.

Buy rating.

One broker that is a fan is Goldman Sachs. In response to its big shakeup, the broker reiterated its buy rating and $3.60 price target on the company’s 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, this represents a fully franked 5.3% dividend yield.

More reading

• Why the Uniti (ASX:UWL) share price is zooming 13% higher today
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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 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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The best dividend stocks for 2021 may not necessarily be those companies with the highest yields. Certainly, a generous passive income is likely to be attractive in 2021, but affordable dividends and the prospect of growth may be equally important.

As such, searching for strong businesses in sectors that are currently unfavoured by investors, but that have long-term growth opportunities, could be a sound strategy to find the best income shares for 2021.

Dividend stocks with high yields

Dividend stocks with high yields may be more common in sectors that are currently unpopular among investors. They may have experienced share price falls since the start of the year. If they have maintained, or even increased, dividends then this may have resulted in them offering high income returns at the present time.

High-yielding dividend shares could become increasingly popular among investors in the coming months. Low interest rates look set to remain in place for an extended period of time. This could mean that income stocks with high yields are a relatively rare opportunity to generate inflation-beating income returns over the medium term. As such, dividend stocks with high yields could experience high demand that means they offer impressive capital gains to complement their passive income prospects.

Dividend affordability in 2021

The outlook for dividend stocks is very uncertain. Risks such as the coronavirus pandemic look set to remain in place for at least part of 2021. As such, the economic outlook could continue to be very challenging across a number of different sectors.

This means that dividend affordability may be crucial for any investor seeking to make a passive income. Therefore, checking a company’s financial position may be more important than ever. It can provide guidance as to the affordability of dividends should operating conditions worsen.

Information on the debt levels and interest cover of dividend stocks can act as a guide in assessing their financial strength. Meanwhile, dividend cover provides guidance on whether a company could withstand a drop in profitability when it comes to paying dividends. Ensuring a business has headroom when making dividend payments could be a prudent approach ahead of what may prove to be an uncertain 2021.

Dividend growth potential

As well as high yields and affordable payouts, dividend stocks with growth potential could be worth buying for 2021 and beyond. Companies that can grow dividends at a pace that exceeds inflation may become more popular in the coming years. This could mean they produce strong capital growth.

Clearly, assessing a company’s dividend growth prospects is tough at the present time. Shareholder payouts are closely linked to the outlook for profitability. However, by investing money in sectors with sound track records and clear opportunities for growth, it may be possible to find the most attractive income shares that deliver the highest returns in 2021 and in the coming years.

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Motley Fool contributor Peter Stephens 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 How I’ll find the best dividend stocks for 2021 appeared first on The Motley Fool Australia.

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