Motley Fool Australia

Buy Fortescue and this ASX dividend share for a source of income

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Are you looking for a source of income in this low interest rate environment? Then I would suggest you take a look at the income options listed below.

Both options offer generous yields and could be great additions to a balanced portfolio. Here’s why I think they are in the buy zone for next week:

Fortescue Metals Group Limited (ASX: FMG)

I think Fortescue could be a good option for income investors. Iron ore prices have been very strong in 2020 and continue to trade at lofty levels. This puts Fortescue in a position to deliver exceptionally high levels of free cash flow again in FY 2021. And thanks to the strength of its balance sheet, the majority of this looks likely to be returned to shareholders once again. Estimating the dividend Fortescue will pay is difficult, but I expect a yield in the region of 6% this year.

Vanguard Australian Shares Index ETF (ASX: VAS)

Another option for income investors to consider buying is the Vanguard Australian Shares Index ETF. I think it would be a great option for investors that don’t have sufficient funds to maintain a truly diverse portfolio of dividend shares. This is because this exchange traded fund gives investors the ability to invest in the 300 shares that are listed on the S&P/ASX 300 index through just a single investment. This includes Fortescue, the big four banks, and dividend favourites such as Sydney Airport Holdings Pty Ltd (ASX: SYD) and Transurban Group (ASX: TCL). While its dividend yield for FY 2021 is difficult to predict due to the impact of dividend deferrals and reductions because of the pandemic, I still expect a decent yield in the region of 3% to 4%. From FY 2022 I would expect its yield to return to normal and be above 4% once again.

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Returns As of 6th October 2020

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Transurban Group. 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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