Income investors are facing a double whammy in today’s market. Firstly, (as we all know) interest rates are at record lows, essentially making cash investments like term deposits and debt investments like bonds inflation-matching at best, with not much prospect of a real return. Secondly, (and as a result of the first problem) solid dividend paying companies have seen huge levels of capital inflow. This has driven up the share price of bond-proxy stocks like Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD) to record highs (and their price-to-dividend yields to record lows as a result).
The consequence of all this is that investors seeking a juicy income in FY20 might have to take on a bit more risk to get a yield north of 5%. Here are two ASX dividend shares that offer just that – not that I would call them risky shares, I just wouldn’t call them bond proxies.
Australia and New Zealand Banking Group (ASX: ANZ)
ANZ bank is looking like the cheapest of the ‘Big Four’ banks right now, with a price-to-earnings ratio of 11.55, giving ANZ a dividend yield of 5.92% (8.46% including franking credits) on current prices. ANZ offers investors a solid banking share with (in my opinion) a more diversified balance sheet than some of the other major banks. By focusing more on business credit and less on retail banking and mortgages, ANZ is better placed to weather any wobbles in the property market.
Of course, if there is a major economic downturn, ANZ (and its dividend) will likely take a hit. But in my view, ANZ is a desirable candidate for any income portfolio
Scentre Group (ASX: SCG)
Scentre is a real estate investment trust (REIT) that was formed after the demerger of the old Westfield Group. Scentre took ownership of the Australian and New Zealand portfolio of Westfield shopping centres, which gives it some of the best retail real estate in the country. Investors have been sceptical of Scentre recently, given the online threats that face the physical retail space. But I think Scentre has adapted its business well and remains one of the highest-quality REITs on the ASX – especially with its current yield of 5.6%.
Both of these shares are throwing out generous yields above 5% at current prices. Sure they don’t have the safety that a Transurban might offer, but you do get a higher yield as a trade-off. I think Scentre is offering the best bang for your buck on today’s prices, but ANZ isn’t looking too expensive either.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. The Motley Fool Australia has recommended Scentre Group. 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.