High-yielding ASX dividend shares with yields over 8% are increasingly hard to find in 2020. Far more common are the ASX dividend shares with trailing yields of more than 8% but which have fallen from grace after admitting their dividend payments are going the way of the dodo in 2020.
Take Westpac Banking Corp (ASX: WBC). On the surface, this company looks like a dividend no-brainer with a trailing, fully franked yield of 9.95% (or 14.21% grossed-up). But do some easy digging on this company and you’ll find that, although it paid a healthy $1.74 in dividends per share in 2019, there has been nothing but a $1.3 billion fine coming out of Westpac in 2020 (so far anyway). That’s your classic dividend trap.
So, here are 2 ASX dividend shares that do happen to have grossed-up yields of more than 8%, but which I happen to think are sustainable going forward.
2 ASX dividend shares with yields over 8%
Telstra Corporation Ltd (ASX: TLS)
Telstra is my first high-yielding dividend share. The Telstra share price has been on the slide recently, ever since its FY2020 earnings report hit the markets. Investors aren’t too keen on Telstra shares now since the company flagged that its earnings payout ratio wouldn’t be able to cover its 16 cents per share dividend in FY21. This is evidenced (in my view) by the Telstra share price being down nearly 18% since early August.
I think this view is a little too pessimistic. That’s because, although Telstra’s earnings will be lower this financial year, the company will likely still have more than enough free cash flow to cover a 16 cents per share dividend regardless. That would give Telstra a dividend yield of 5.59% on current prices, or 8% grossed-up with Telstra’s full franking. As such, I think Telstra is a great option for dividend income in 2020. I think patient investors will be rewarded with this company, especially if its 5G investments bear fruit.
WAM Research Limited (ASX: WAX)
WAM Research is my second high-yield dividend share. It’s a listed investment company (LIC) which basically means it’s a company which buys and sells shares on behalf of its investors. In WAM Research’s case, it tends to look for undervalued growth companies on the ASX, which it sees as having a reasonable chance of appreciating in value. Some of its current holdings (as of 31 August) include Elders Ltd (ASX: ELD), Brickworks Limited (ASX: BKW) and Adairs Ltd (ASX: ADH).
I love WAM Research for its strong history of delivering both growth and income for its shareholders. Since 2010, this LIC has returned an average of 15.1% per annum (before fees and taxes). Much of this stellar return has come in the form of dividend payments.
WAM Research will pay two dividends in 2020 – one paid in April and one due to be paid next month. Both dividends will come in at 4.9 cents per share. That gives WAM Research a projected yield for 2020 of 6.53%, or 9.33% grossed-up with full franking. And the best thing about this dividend is its sustainability. WAM Research tells us that it has 34.9 cents per share left in its profit reserve, which can fund this dividend for another three years at least. That’s some decent certainty and makes WAM Research a great income investment in 2020 in my view.
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Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited and WAM Research Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Telstra Limited. The Motley Fool Australia has recommended Elders 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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