Yield is hard to come by these days. You only have to go back a few years and almost every asset class offered some kind of ongoing yield, usually proportionate to the level of risk one undertakes by investing in that particular asset.
So a savings account might give you back 4% per year, a term deposit 5%, a government bond maybe 6% and so on. Shares have always offered higher returns than these other asset classes, but this has always been balanced by the higher volatility of the share market.
Our ultra-low interest rates have smashed this paradigm, however. Cash, bonds, term deposits… all are barely offering inflation-beating returns these days, which leaves dividend shares as the only real-returning asset for investors to consider.
So here are 2 ASX dividend shares that I think offer a generous yield in today’s low-rate world.
Wesfarmers Ltd (ASX: WES)
Wesfarmers has to be one of the most diverse companies on the ASX. This conglomerate owns the Bunnings Warehouse hardware chain as well as the Kmart, Officeworks and Target stores. In addition, it owns a bunch of other companies across the mining, manufacturing and clothing sectors. Oh, and a 15% in Coles Group Ltd (ASX: COL) to top it off.
Such a diversified group of top-notch companies makes Wesfarmers’ earnings base very resilient in my view, and underpins a strong dividend. This dividend is projected to come in at 5.1% grossed-up next year, which I think makes WES shares a compelling income buy today.
Rio Tinto Ltd (ASX: RIO)
Rio is the second largest ASX miner behind its arch-rival BHP Group Ltd (ASX: BHP). I like Rio for its massive global presence and the low-cost production model it employs for its flagship commodity – iron ore. Because of this model, Rio was able to take huge advantage of the spike in iron ore prices we saw earlier this year, and showered its shareholders with dividend cash. For some perspective, its trailing dividend yield is around 8.9%.
Whilst I don’t know what commodity prices will be doing next year, I’m more sure that Rio will extract maximum value for its shareholders if they trend upwards again. Thus, I think Rio is a great long-term buy-and-hold stock to own for income.
With these ASX dividend shares, I think we have 2 companies that would do well in any dividend-focused portfolio. Both companies have a long history of delivering for their shareholders, and I don’t see this changing any time soon.
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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 Wesfarmers Limited. 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.