With interest rates set to remain at historic lows for at least another few years, keeping your money in a high interest savings account or a term deposit will barely keep up with inflation.
Instead, here are 2 blue-chip ASX shares to consider: Macquarie Group Ltd (ASX: MQG) and BHP Group Ltd (ASX: BHP), both of which pay attractive dividends and are well positioned for strong long term growth.
BHP is my pick of the mining shares on the ASX right now due its diversified, world-class operations and strong balance sheet. I think it could be good option if you wish to diversify your portfolio by gaining additional exposure to the mining sector.
Due to its relatively strong financial position, supported by the fact that iron ore prices have remained reasonably buoyant since the beginning of the crisis, I believe that there is unlikely to be any sharp cut to its dividend payout to shareholders over the next 12 months.
In its recent quarterly activities report, BHP revealed that it expects to continue to generate solid cash flows and that it produced a record amount of iron ore during the quarter. In addition, it revealed that its production guidance for the current financial year for petroleum, iron ore and metallurgical coal remains unchanged, despite the current coronavirus crisis.
Although slowing demand from key markets such as the US and China could provide more headwinds over the next 12 months, there are signs of recovery in China so this slowdown is likely to be minimal. Also, as the Australian Government looks to stimulate our local economy with a range of new infrastructure projects, this could generate further local demand for BHP’s raw materials.
Based on current earnings, BHP offers a very attractive forward fully franked dividend yield of around 5.4%.
I’m more attracted to investment bank Macquarie than the big four major banks, due to the quality and diversity of its earnings base. Particularly attractive is its lower vulnerability to downturns in the local residential property market, such as the one we are now experiencing.
Although Macquarie reported an 8% decline in net profit to $2,731 million the 12 months ended 31 March 2020 in its FY2020 results announced last Friday, this still appears to be a reasonably solid result considering the very challenging second half year we have just experienced.
Macquarie has just declared a final dividend of $1.80 per share, bringing its full year FY2020 dividend to a total of $4.30 per share. Although this equates to a 25% reduction on last financial year’s dividend, it still is equivalent to a favourable 4.3% yield. In comparison, the four major banks have currently either deferred their next dividend payment or sharply dropped it.
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Motley Fool contributor Phil Harpur owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, and Westpac Banking. 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.