Capital gains on investments comes with an added element of risk. Dividend income on the other hand is a lot safer comparatively. With ultra low interest rates likely to persist, and a cyclical rotation underway as Australia’s economy recovers from the economy, dividend stocks are in high demand among long term investors.
Dividend stocks bring an element of safety to an investment because they are usually less volatile and have lower beta than growth stocks. The sustainability of cash flows that these companies generate is what makes them great dividend sources.
Fortescue Metals Group is one of the largest iron ore producers in the world and it has performed exceptionally well during a very turbulent 2020. FMG has returned over 100% in the past year, with significant gains in the past 6 months. High iron ore prices and a halt in operations to one of its biggest competitors has resulted in an exceptional share price performance. They are also one of the top dividend stocks listed on the ASX with current annual yields coming in over 9%. FMG is arguably the best pure play iron ore stock on the ASX. They have had a record half year with shipments, earnings, and operating cash flows being at all time highs.
The guidance for FY2021 shipments has been increased to 178-182 metric tonnes. FMG is a top class ASX share to own right now with high iron ore prices and a strong Aussie dollar. The dividends are all but guaranteed and share price growth should be above average.
The financial services giant is part of the ASX200 index with over 500,000 clients and $202 billion in funds under management. The firm provides financial advice, portfolio management, investment management, and estate administration services in Australia and New Zealand. IFL has been a steady performer in the past and has had a particularly good last couple of years since the Royal Commission debacle. Growth rates have been stellar in the revenues department recently. IOOF has performed well recently and is forecasted to continue doing so. The acquisition of MLC will give its growth prospects a boost going forward. With a high dividend yield of 6.8%, IOOF Holdings is one of the best dividend stocks to buy.
The tailwind that will push the stock forward will come from more money entering the financial markets as the economic recovery from Covid-19 will be underway as the vaccine deployment begins. IOOF is a top quality option for investors looking at dividend stocks.
Spark is in the business of electricity transmission and distribution in Australia by way of investing in firms that do just that. This means, SKI’s revenues are dependent on the performance of its portfolio companies in an industry that is highly regulated. Spark is part of the ASX100 index – the index that tracks the top 100 firms on the ASX by market capitalisation. The firm has suffered from a decrease in demand for electricity due to pandemic induced restrictions. However, has not utilised any financial assistance from the Government to offset any dips in performance during these unprecedented times. With a vaccine on the horizon and ANZ recovering well from the pandemic, the demand for electricity is set to rebound – adding tailwinds to the business.
The stable business came with a dividend of 6 cents per share in its most recent payout and it is a dividend stock to consider
Monash operates in the human fertility and assisted reproductive industry and is the second biggest player in Australia’s fertility industry. Since the IPO of Monash IVF, it has been quite busy acquiring clinics to broaden its market position and penetration levels. The current strategy of MVF is to integrate diagnostic services with fertility and seek opportunities in the Asia-Pacific region. IVF is a pretty stable market and hence, the firm is already a high dividend stock on the ASX.
Monash has also raised equity recently in a bid to reduce its debt levels and mitigate some of the impacts of the pandemic. Stimulated cycles have seen a growth of about 25% since restrictions surrounding non-essential treatments were lifted. The firm’s revenues are forecasted to increase in the coming years as the MVF sees growth in its operations – making it one of the best dividend stocks to buy in the ASX.
MVF paid out 100% franked dividends of 2 cents a share. With the yield coming in at 5.5%, it is a very good dividend stock option.
Rural Funds Group is a Canberra based Trust, that owns agricultural real estate across Australia and leases them to counterparties. Their activities and assets include leasing of almond orchards, macadamia orchards, poultry property and infrastructure, vineyards, cattle properties, cotton property, agricultural plant and equipment, cattle and water rights. RFF generates its revenues through lease payments and appreciation of the market value of its assets over time. Hence, it is a real-estate fund manager. The global market for agricultural products has weathered the Covid19 storm. Commodity prices depend on supply and demand, and they have also relatively held their ground during this time. This has ensured that RFF’s portfolio of assets have performed relatively well during the crisis and hence, de-risks RFF. With over 60 well diversified properties in its portfolio, the agricultural fund manager is a good one to hold on to in your portfolio for the dividends that come with it.
Income stocks are potentially one of the hardest to pick as there are a lot of factors that need to be considered – from industry tailwinds to financial health of the individual stocks, and a lot of little things in between them. Several ASX listed stocks have also cut dividends in light of the challenges posed by the pandemic.The low interest rate environment brings income stocks to the forefront for most investors. With the earnings season bringing back dividends in most industries, Shares in Value research team have picked their top 3 ASX income stocks to buy and it can be downloaded for free!