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Does Alumina’s 12% dividend yield make it the best ASX dividend share?

Alumina Limited (ASX: AWC) is one of the best S&P/ASX 200 Index (INDEXASX: XJO) dividend shares on the market right now.

Alumina shares are yielding 12.04% at the time of writing with a share price of $2.17 per share – not far from a 52-week low.

However, Alumina is essentially a pure-play on the global alumina and aluminium prices. The real question is, how much yield is enough to be the top ASX dividend share on the market?

Does Alumina’s dividend justify the risk?

The Alumina share price has more than doubled since it bottomed out at the start of 2016. However, the ASX dividend share is down 16.54% in the last 12 months which has helped boost its dividend yield higher.

The basics of corporate finance suggest a trade-off between growth and income. If a company is paying out more profit to shareholders in dividends, that means less money is being reinvested into the business for future growth.

Of course, that’s not to say there is one way that is better than the other. But it does mean that management decides the money is better to be returned to shareholders because there’s no longer value in reinvestment.

Alumina is an extreme example of this as a top ASX dividend share. A 12.04% dividend yield is almost unheard of in this day and age with double digits being extremely rare.

The Alumina share price has delivered capital gains in recent years while also paying out handsome dividends. That’s the golden combination that ASX income investors are on the lookout for.

I personally think investments in the Resources sector is a bit risky at the top of the cycle. All of the concerns around Brexit and the US-China trade war could also directly affect global trade and therefore, commodities.

What other ASX dividend shares are good value?

If you’re seeking strong ASX dividends in 2020, there are other options that might be good value.

I personally like Macquarie Group Ltd (ASX: MQG) and Harvey Norman Holdings Limited (ASX: HVN).

The Aussie banking and retail sectors have their fair share of concerns, but I think these 2 could be good value dividend shares right now.

Here are 3 more ASX dividend shares that I'll be watching this February reporting season.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group 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.

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