Are these high yield ASX dividend shares worth buying?

Are the high yield ASX dividend shares in this article worth buying? One of the considerations is Telstra Corporation Ltd (ASX:TLS).

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High yield ASX dividend shares may be quite attractive to investors at the moment.

Interest rates are now incredibly low and that makes the dividends offered by ASX shares seem very appealing.

But just because something pays a dividend, even with a high yield, doesn't mean that it's a good pick automatically.

Below are three high yield ASX dividend shares, are they worth buying?

Telstra Corporation Ltd (ASX: TLS)

Telstra has been a popular high yield ASX dividend share for many years. However, today the Telstra share price is almost as low as it has ever been. It has fallen over the past year, five years and it's down from when it listed. 

A share price will generally reflect the earnings trajectory. Telstra's earnings have been dropping for the past few years because of the shift to the NBN. In FY20 Telstra's total income fell 5.9% to $26.2 billion and net profit after tax (NPAT) dropped 14.4% to $1.8 billion.

The falling profit is the main reason why the Telstra dividend has almost halved since 2017. The dividend could actually be cut again if profit doesn't stabilise. So far, 5G doesn't seem like the profit saver it's expected to be for Telstra.

The high yield ASX dividend share offers a grossed-up dividend yield of 8%. I'm not a buyer today because there's a fair chance the earnings and dividend could decline more.

WAM Research Limited (ASX: WAX)

WAM Research is listed investment company (LIC) which is run by the high-performing team at Wilson Asset Management.

During the 2010s, WAM Research was one of the best-performing LICs. That strong performance allows it to keep increasing the dividend each year. The high yield ASX dividend share has increased its income payment every year since the GFC.

The fact that it's a LIC also means that it offers diversification because it has dozens of holdings. Some names that it holds (or held recently) include: Adairs Ltd (ASX: ADH), Bapcor Ltd (ASX: BAP), Brickworks Limited (ASX: BKW) and BWX Ltd (ASX: BWX).

At the current WAM Research share price, it is still a high yield ASX dividend share after strong growth, it offers a grossed-up yield of 9.2%.

However, even after a strong portfolio performance in August, the WAM Research share price is trading at a 39.4% premium to the August 2020 pre-tax net tangible assets (NTA). Unless the LIC has had an incredible September, this premium seems very expensive and the dividend yield may prove to be unsustainably high over the long-term (when compared to the NTA). If WAM Research was trading near its NTA I'd be much more interested.

Whilst they have lower yields, I'd prefer other WAM LICs like WAM Leaders Ltd (ASX: WLE) or WAM Microcap Limited (ASX: WMI) which look better value to me.

Fortescue Metals Group Limited (ASX: FMG)

Fortescue is one of the most impressive miners on the ASX. It has done very well, growing to become one of the latest businesses in Australia.

However, whilst Fortescue has done very well, some of this heightened economic strength may not be around forever consistently. Commodities like iron ore usually move in cycles.

The high yield ASX dividend share has benefited from the strong demand from China as well as the production disruption in Brazil due to COVID-19 impacts.

I believe it's better to buy commodity businesses near the bottom of the cycle, rather than the top. Who knows when that will happen? I'm just not sure buying now is wise, even if the dividend looks very tempting. At some point production in Brazil will return to normal. 

At the current Fortescue Metals Group share price it offers a trailing grossed-up dividend yield of 15.8%. If the future grossed-up dividends can remain above 10% over the long-term then it could still be worth holding purely for income investors.

Motley Fool contributor Tristan Harrison owns shares of WAM MICRO FPO. The Motley Fool Australia owns shares of and has recommended Bapcor, Brickworks, BWX Limited, and Telstra 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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