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2 ASX dividend shares with yields over 10%

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Finding an ASX dividend share with a yield of 10% per annum is not an easy task. Finding one that can sustainably pay such a yield is harder still.

The market doesn’t often price a company’s shares at a level that offers a 10% yield, so a lot of research and analysis is necessary when dealing with such an offer. And that’s exactly what we’ll be doing today with 2 ASX shares that I’ve found that do indeed offer yields of 10% or more per annum. So let’s see if we’d swipe left or right on these shares today.

2 high-yielding ASX dividend shares

1) Fortescue Metals Group Limited (ASX: FMG)

Fortescue is an iron ore miner that has grown into one of the biggest on the ASX today. Its shares have been on a tear recently, up more than 61% in 2020 alone. This can be mostly explained by the price of iron ore, which has exploded this year and remains around the historically-high US$120 per tonne level. Since it only costs Fortescue between US$12–13 to extract 1 tonne of ore, it’s a good time to be a shareholder of this company.

But let’s talk dividends, the reason why we’re here. In its earnings report for the 2020 financial year, Fortescue declared a final dividend of $1 per share. That brings the total amount of dividends paid in FY20 to a full franked $1.76 per share, which represents a trailing dividend yield of 10.09% on current prices (or 14.41% grossed-up).

Such a stupendous yield is hardly believable, but Fortescue shares did trade ex-dividend for the final payout this morning, so make sure you add that pinch of salt. Even so, this is a monster income stock to be sure. Now, iron ore is a notoriously cyclical commodity, so its fairly certain that the company will not be paying $1.76 in dividends every year ad infinitum.

Conversely, this company has such a low cost base that it should be able to fund a hefty payout even if iron ore prices fall in the future. But as long as they stay near US$120, I expect the big dividends to continue from Fortescue.

2) WAM Capital Ltd (ASX: WAM)

Our second 10% dividend share is this listed investment company (LIC). WAM Capital has been around since 1999 and has made a name for itself as a strong dividend payer. It invests in a portfolio of ASX shares that it thinks have strong growth prospects. Some of its top holdings (as of 31 July) include the A2 Milk Company Ltd (ASX: A2M), Pushpay Holdings Ltd (ASX: PPH) and Adairs Ltd (ASX: ADH).

WAM Capital’s most recent dividend came in at 7.75 cents per share, which gives this company an annualised trailing yield of 7.21%, or 10.3% grossed-up with full franking. Although this yield looks great on paper, I’m less bullish in its sustainability than Fortescue’s. That’s because, as of 31 July, WAM Capital has advised investors that it only holds 8.7 cents per share in its profit reserve. That means it will be unable to continue to pay an annual 15.5 cents per share dividend for too much longer unless the company has some kind of windfall. This could well come to pass, but there’s a good chance it won’t in my view.

As such, I think I would prefer to hold Fortescue shares today instead.

Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool Australia owns shares of A2 Milk. 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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