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.
While a high dividend yield is great, investors should always take into consideration the reason behind the yield and the state of the company.
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Motley Fool contributor Lina Lim 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.