One of the consequences of the coronavirus outbreak has been the deferral or cancellation of dividend payments by companies.
This is a disappointing blow for investors that are reliant on these dividends for a source of income.
The good news is that there are still companies that are well-positioned to continue paying their dividends during the crisis.
Three which tick a lot of boxes for me are listed below. Here’s why they could be good options for income investors during this crisis:
BHP Group Ltd (ASX: BHP)
I think that BHP would be a great option for income investors during the coronavirus crisis. To date, iron ore prices have remained very strong despite the collapse of global markets. This is a big positive for the Big Australian, given how important its iron ore operations are to its overall profits. In light of this, I expect BHP to deliver more bumper free cash flows in FY 2020 and FY 2021. Especially if Chinese stimulus measures lead to increasing demand for the steel making ingredient in the near term. At present I estimate that BHP’s shares offer a fully franked forward 6% dividend yield.
Telstra Corporation Ltd (ASX: TLS)
There are not many companies on the ASX that have been able to maintain their guidance, let alone reaffirm it. But Telstra is one of these companies. It recently confirmed that it remains on track to achieve its guidance in FY 2020. I think this demonstrates the defensive qualities of its business. Another positive is that based on its free cash flow guidance, I believe its dividend is sustainable at the current level. Looking further ahead, I think its outlook is increasingly positive and Telstra could even return to growth from FY 2022. At present its shares offer a fully franked 4.9% yield.
Vanguard Australian Shares High Yield ETF (ASX: VHY)
A final option to consider is the Vanguard Australian Shares High Yield ETF. This exchange traded fund allows investors to gain exposure to a large number of the highest yielding shares on the ASX. This diverse group includes the likes of BHP, Telstra, Wesfarmers Ltd (ASX: WES), and the big four banks. I think this diversity is especially important in the current environment when many dividend companies are deferring or outright cancelling payments. I estimates that its units currently provide investors with an ~80% franked 5.4% dividend yield.
These 3 stocks could be the next big movers in 2020
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. 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.
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