In the current low interest rate climate, investors are constantly hunting for meaningful income and yield. However, there is a big difference between a healthy, sustainable dividend versus one that is characterised by a falling share price, limited growth prospects or a one-off dividend payment.
Here are the 3 highest ASX dividend stocks, and a closer look at whether or not they are worth the yield.
1. Alumina Limited (ASX: AWC)
Alumina is engaged in investing in bauxite mining, alumina refining and select aluminium smelting operations. The company currently has a 13.9% dividend yield, which equates to a gross yield of 19%. Like any materials and commodity related company, Alumina is heavily reliant on the aluminium spot price. The aluminium spot price is currently down 4.5% this year.
While I am not an advocate for a company that pays a dividend per share that matches its earnings per share, Alumina does have a solid outlook, strong cashflows and a favourably weak Australian dollar. I would be wary of overarching issues like a slowing global economy, trade tensions and a weak aluminium spot price that might act to weaken the Alumina share price.
2. IOOF Holdings Limited (ASX: IFL)
IOOF is an Australian financial service provider that offers financial products and portfolio administration including investments, superannuation, annuities and investment trusts. The company currently offers a 9% dividend yield (13% grossed). It has been in a strong negative trend since the start of the Royal Commission back in December 2017. I would avoid this company, as it has fallen more than 50% since the Royal Commission and may face further challenges such as remediation charges and restructuring of its financial advice business.
3. Whitehaven Coal Ltd (ASX: WHC)
The Whitehaven Coal share price is down 25% since the start of the year and is currently sitting at almost 2-year lows. It currently pays a 7.80% dividend, but faces increasing pressures from a falling coal spot price. The pricing for coal has weakened across Whitehaven's quarterly reports from US$118 per tonne in September 2018 to US$80 per tonne in June 2019. While the company is seeing strong results in terms of production and sales, I would need to see a turnaround in the underlying commodity before considering Whitehaven as a proper dividend-paying stock.
Foolish takeaway
While a high dividend yield is great, investors should always take into consideration the reason behind the yield and the state of the company.
