Dividend hungry investors can start salivating. There are a number of large cap stocks trading on dividend yields over 9% which look irresistible in this falling interest rate environment.
What’s best is that you don’t have to move up the risk curve to get the juicy dividends as you typically would have to. ASX stocks with such plump yields usually belong in the distressed category as their low share price artificially inflates their historical dividend payout.
Forget about the banks and other traditional income stocks like infrastructure on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index. Macquarie Group Ltd (ASX: MQG) highlighted three miners that are tipped to cough up big dividends in 2019.
The highest yielding major miner
The first is Fortescue Metals Group Limited (ASX: FMG). The FMG share price surged yesterday on a surprise dividend handout and Macquarie estimates the stock is trading on a yield of 10.4% for this calendar year.
“Iron ore prices are currently trading well above forecasts (spot US$93/t vs Macq CY19 US$77/t) and drive upside risk to our dividend assumptions,” said the broker.
“FMG could declare a further A$0.20 dividend for FY19 should iron ore prices remain at current levels.”
These large caps are dividend cash cows too
The higher than expected iron ore price will also benefit BHP Group Ltd (ASX: BHP). While the broker estimates that the stock on a yield of 7.4% in CY2019, this goes up to around 9% on a financial year basis (meaning the 12 months to June 30, 2020).
What’s more, BHP has the largest amount of franking credits on its balance sheet compared to its cohort. Macquarie reports that BHP has $12.7 billion worth of these credits it can hand to shareholders through dividends – which equates to 7.3% of its market cap.
Second in line is Alumina Limited (ASX: AWC) with franking credits equal to 7% of its market cap. The stock is trading on a CY19 yield of around 9.6%, according to Macquarie’s numbers.
Who can pay a special dividend?
However, don’t expect Alumina to pay a special dividend as a franking conduit to hand the tax benefit back to shareholders. The structure of its joint venture with Alcoa makes such an outcome unlikely.
On the other hand, BHP, Fortescue and Rio Tinto Limited (ASX: RIO) have the capability of upping their dividends or paying a special dividend to shareholders.
Macquarie has an “outperform” recommendation on these three stocks, although they aren’t the only dividend paying stocks that are attractive.
The experts at the Motley Fool have uncovered another dividend gem for 2019 and you can find out what this stock is for free by clicking on the link below.
Where to invest $1,000 right now
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Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. 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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