Yield is highly sought after in today's low interest rate environment. Here are the 5 highest dividend stocks on the ASX right now – but can they provide a sustainable yield?
1. Alumina Limited (ASX: AWC)
Alumina invests in bauxite mining, alumina refining and select aluminium smelting operations. The company has cut its dividend yield from 13.9% to 10.2% following lower alumina prices.
In its recent FY19 full-year results announced on 23 August, the company reported its net profits after tax were down 25% and announced a cut to its interim dividend by 49%. It cited that "tight Western world alumina market conditions of 2018 have subsided in the first half of 2019 as curtailed supply came back on stream and new refineries ramped up."
Alumina saw its average realised price of alumina drop 12%, despite making small strides in production efficiency with the cash cost per tonne of alumina produced improving by 3%.
I believe Alumina will be a classic example of a high dividend paying stock that does not have the support of the underlying commodity price. The company has outlined that the "uncertain global sentiment is likely to continue while trade wars persist, weighing on the Aluminium price in 2019." Without the support of the aluminium and alumina spot price, this dividend will likely face more cuts in the future.
2. IOOF Holdings Ltd (ASX: IFL)
IOOF is an Australian financial services provider that offers financial products and portfolio administration including investments, superannuation, annuities and investment trusts. Like many companies affected by the Royal Commission, IOOF is working towards restoring trust, while experiencing significant outlays for remediation costs and restructuring its financial advice business.
The company delivered a positive FY19 full-year result with its underlying NPAT up 3.4% and funds under management growing by 18.7%. IOOF currently pays a gross yield of 10.2%. Its current dividend payment represents a payout ratio of approximately 79% and is within the company's stated payout range of 60–90%.
3. Whitehaven Coal (ASX: WHC)
The Whitehaven Coal share price continues to tank as the coal spot price approaches 2-year lows. Despite a weak underlying commodity, the company managed to deliver record results in its FY19 full year earnings, with sales revenue up 10% and NPAT up 8%. It also announced a dividend of 30 cents per share to be comprised of an ordinary dividend of 13 cents, franked to 50%, and a special dividend of 17 cents per share, unfranked. This would represents a gross yield of just under 10%. In the medium–long term, Whitehaven needs to have the support of the coal spot price as raw production and efficiency savings alone are not sustainable.
4. Bank of Queensland (ASX: BOQ)
Bank of Queensland is currently paying a gross yield of 11.1% at a dividend payout ratio of 81% of earnings. In the company's 1H19 results, it saw cash earnings down 8%, statutory net profit down 10% and net interest margin down 3 basis points to 1.94%. It provided an outlook that 2H19 earnings were "unlikely to improve from the 1H19 level". As a smaller and niche bank, I believe it faces significant cost and revenue challenges that might undermine its ability to maintain this dividend in the future.
5. WAM Capital Limited (ASX: WAM)
WAM Capital currently pays a gross yield of 10.1%. The investment company maintains a cautious view of the Australian market, citing that "record low interest rates have driven up valuations and increased speculation." As a result, its investment portfolio's cash level is at more than 25%. The quality of WAM's dividend payout speaks for itself. I believe the company has sufficient profit reserves and investment capabilities to maintain and grow its dividend.
