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Don’t be blinded by gold fever…consider these ASX dividend shares instead

digital asx share price graph against backdrop of gold nuggets
Image source: Getty Images

The financial headlines today are awash with gold.

You’ve likely already been inundated with that news, so I’ll keep this part brief.

The yellow metal hit an all-time high in US dollars overnight. At time of writing it’s trading for US$1,962 (AU$2,725) per troy ounce.

Gold’s current bull run is being driven by record low interest rates, ballooning government debts, and growing geopolitical uncertainty surrounding western relations with China. And, of course, the insecurity thrown up by the COVID-19 pandemic.

In short, a cornucopia of tailwinds is seeing retail and institutional investors — not to mention major central banks — add to their gold holdings. Some of that is in the form of physical bullion, though many retail investors are turning to gold exchange-traded funds (ETFs).

As you’d expect, this has seen the share price of most gold miners rocket.

Northern Star Resources Ltd (ASX: NST), for example, is up 44.3% so far in 2020.

And gold mining giant Newcrest Mining Limited (ASX: NCM), with a market cap of $30.4 billion, has gained 24.8% year to date.

Both shares are up in intraday trading today as well.

Should you jump on the gold bandwagon?

It’s tempting to buy gold and gold shares following a new wave of good news. But as the old investor adage goes, ‘If it’s in the news, it’s in the price’.

That doesn’t mean gold, and the companies that mine it, can’t go higher from here. But with greed abounding, it brings up unpleasant memories of bitcoin in the latter months of 2017. That greed saw the cryptocurrency soar to unprecedented heights before crashing hard in 2018.

At the moment, most analysts — and everyone I spoke to at last weekend’s barbecue — are greedy for a piece of the gold profits.

But as legendary value investor Warren Buffett advises, you should be, “fearful when others are greedy, and greedy when others are fearful.”

Noting that equities outperform gold over time, Buffett has also labelled investors buying gold when the price is rising as ‘foolish’. Of course that’s foolish without the capital F!

While I don’t expect gold to fall by more than 80%, like bitcoin did, it may well be approaching its peak. And I certainly wouldn’t rule out a fall of 10% or more from the current price.

That means gold miners’ share prices will again be determined by how much and how affordably they can dig the yellow metal from the ground. And not by a lot of hype over its new record prices.

A Foolish alternative

If you don’t have a high appetite for risk and aren’t comfortable jumping in and out of ASX shares, you’re probably better off turning your attention to yield shares.

These are shares that pay regular dividends. And if you invest in the right ones, you’ll ideally see their share prices rise as well.

Sydney-based Kardinia Capital has increased its exposure to ASX dividend shares. And the fund has an admirable track record. Since launching in May 2006, the Bennelong Kardinia Absolute Return Fund has an annualised return of 8.36%.

As quoted by Bloomberg, co-founder and portfolio manager Kristiaan Rehder said, “We are not just looking at companies that offer an attractive yield, we are also looking for companies that have a sustainable dividend yield. They are both important.”

Rehder went on to explain the fund is going beyond the traditional ASX dividend shares, like Atlas Arteria Group (ASX: ALX). It also holds JB Hi-Fi Limited (ASX: JBH) and Fortescue Metals Group Limited (ASX: FMG). He likes these shares because, “they offer heightened dividends with relative certainty of payouts due to resilient and strong earnings.”

If you’re looking to add an ASX dividend paying share to your portfolio, you may want to consider Collins Foods Ltd (ASX: CKF).

With a market capitalisation of $1.15 billion, the company is a KFC franchisee in Australia, the Netherlands and Germany. It’s also a Taco Bell franchisee in Australia and Sizzler franchisee in Asia. Collins is the owner of Sizzler restaurants in Australia.

In its annual results, released in June, Collins’ final dividend remained flat at 10.5 cents per share. That works out to a trailing yield of 2.1%, fully franked, meaning you can deduct the corporate tax rate from any taxes you may owe. Or even get some money back from the ATO depending on your personal financial situation.

Like most ASX shares, the Collins Foods share price tumbled from late February into mid-March. But it’s since rebounded strongly. From its low on 23 March, Collins’ shares are up 127.8%. Year-to-date the share price is up 11.1%.

As for gold fever? Avert your eyes.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Collins Foods 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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