With interest rates at record lows and potentially going even lower, it is becoming harder and harder for income investors to generate a sufficient level of income from traditional interest-bearing assets.
The good news is that the share market is here to save the day. Here are three top dividend shares that can help you beat low rates:
Fortescue Metals Group Limited (ASX: FMG)
With iron ore prices remaining extremely resilient during the coronavirus pandemic and Chinese stimulus likely to support demand in the medium term, I believe Fortescue will be in a position to generate bumper free cash flow again in the next 18 months. This is likely to lead to more generous dividend payments from the miner. I'm not the only one that feels this is likely to be the case. Earlier this month analysts at Goldman Sachs estimated that its shares will provide a fully franked 7% dividend yield in FY 2021. I think this is very attractive in this low interest rate environment.
Telstra Corporation Ltd (ASX: TLS)
Another dividend share to consider buying is Telstra. I think it is a great option in the current environment due to its defensive qualities and the relative resilience of its earnings. Another positive is that Telstra's outlook is arguably the best it has been in years. This is because peak pain from the NBN rollout is in sight, demand for data is rising rapidly, and competition in the industry is becoming a lot more rational. While some analysts have tipped a 2 cent per share dividend cut this year, I'm optimistic its cash flows will be sufficient to maintain a 16 cents per share dividend. This equates to a 5.25% dividend yield.
Vanguard Australian Shares Index ETF (ASX: VAS)
A final option for income investors to consider is the Vanguard Australian Shares Index ETF. This exchange traded fund gives investors exposure to the 300 shares that are listed on the S&P/ASX 300 index. This includes the big four banks, along with dividend favourites such as Sydney Airport Holdings Pty Ltd (ASX: SYD) and Transurban Group (ASX: TCL). While its yield is likely to be impacted by the countless dividend deferrals and cancellations that have occurred recently, I expect things to return to normal in FY 2021. At which point I estimate it will provide an attractive yield of over 4% per unit.
