Motley Fool Australia

Low interest rates the new normal? 3 ASX dividend shares to buy today

fingers walking up piles of coins towards bag of cash signifying asx dividend shares
Image source: Getty Images

Low interest rates could be the new normal, at least for the next few years. As such, many investors are looking to ASX dividend shares to provide the additional income that once used to come from bonds and term deposits. 

In an opening statement to the house of representatives standing committee on economics on 14 August 2020, the Reserve Bank of Australia (RBA) Governor, Philip Lowe, said in regards to interest rates:

The Board has clearly indicated that it will not increase the cash rate until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target range. Given the outlook I discussed earlier, these conditions are not likely to be met for at least three years. So it is highly likely that the cash rate will be at this level for some years and having a target for three-year yields of 25 basis points reinforces this message.

In this low interest rate environment, here are my selections for three ASX dividend shares you could consider adding to your portfolio today:

3 ASX dividend shares to buy today

AGL Energy Limited (ASX: AGL)

Despite energy headwinds, AGL was able to deliver earnings within its guidance and declare a 51 cent dividend. For calendar year 2020, this brings AGL’s annual dividend total to 98 cents per share. At the current AGL share price of $15.43, it offers investors a dividend yield of 6.35%. This is considerably better than the returns offered by savings and term deposit accounts.

Additionally, AGL’s management has the intention of paying special dividends during FY21 and FY22. Management has advised, however, that the special dividends are subject to market conditions and that the temporary removal of franking credits will be necessary. 

AGL’s guidance for FY21 underlying profit after tax is between $560 million and $660 million.

Due to the essential nature of electricity and gas, and the company’s strong cash flow, I believe AGL will be able to continue generating dividends for shareholders despite the impact of the coronavirus pandemic. 

Wesfarmers Ltd (ASX: WES)

Whilst the pandemic has resulted in lower foot traffic and, therefore, reduced sales across its Target and K-Mart businesses, Wesfarmers’ Bunnings and Officeworks chains have benefitted from consumers spending increased time in their homes. Furthermore, recent Victorian lockdowns could see Wesfarmers’ Catch.com.au online business help offset some sales decline caused by reduced foot traffic in its physical store locations.

As mentioned, Wesfarmers overall was a major beneficiary of the first lockdown as people prepared for the changes in the way we live. However, the company’s earnings release on Thursday this week could provide further guidance on how the second lockdown in Victoria is impacting on the business into FY21.

At the current Wesfarmers share price of $48.08, and an annualised dividend of $1.53 per share in FY20, the current dividend yield for Wesfarmers is 3.18%. 

Arena REIT No 1 (ASX: ARF)

Arena is a real estate investment trust (REIT) that invests in defensive industries such as childcare, healthcare, education and government.

Last week, the REIT announced its FY20 results. Despite the impact of the coronavirus pandemic on its business, it was still able to deliver an increase in earnings.

In its outlook, the group provided distribution guidance of between 14.4 and 14.6 cents per security for FY21. This represents an increase of 3-4% over FY20. I believe the defensive nature of this REIT could see it continue to deliver increases in its distribution into the future. The current Arena REIT share price of $2.37, and the distribution guidance of 14.4 cents per security, represents a yield of 6.08%.

These Dividend Stocks Could Be Your Next Cash Kings (FREE REPORT)

Motley Fool Australia's Dividend experts recently released a brand-new FREE report revealing 3 dividend stocks with JUICY franked dividends that could keep paying you meaty dividends for years to come.

Our team of investors think these 3 dividend stocks should be a 'must consider' for any savvy dividend investor. But more importantly, could potentially make Australian investors a heap of passive income.

Don't miss out! Simply click the link below to grab your free copy and discover these 3 high conviction stocks now.

Returns As of 6th October 2020

Motley Fool contributor Matthew Donald owns shares of Wesfarmers 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.

Related Articles…