With term deposits and savings accounts offering just paltry interest rates, a growing number of people are turning to the share market for a source of income.
And given the high quality options on offer, I don’t find this surprising at all.
For example, listed below are two popular blue chips that are sharing their profits with shareholders. Here’s what you need to know about their dividend prospects:
Telstra Corporation Ltd (ASX: TLS)
Times have been hard for Telstra over the last few years due to the arrival of the NBN. This rollout saw the company’s lucrative telephone lines ripped out, leading to a significant gap in its earnings. The good news for its long-suffering shareholders is that the telco giant is hoping that its T22 strategy is the catalyst to a resurgence in its fortunes over the 2020s. This strategy is stripping out costs, simplifying its business, and aiming to extend its network superiority and 5G leadership.
However, FY 2021 still looks set to be another difficult year for Telstra because of the pandemic and the NBN rollout. Management expects the latter to result in an in-year underlying EBITDA headwind of approximately $700 million. In light of this, it is forecasting underlying EBITDA in the range of $6.5 billion to $7 billion this year, down from $7.4 billion last year.
Nevertheless, the Telstra board has recently advised that it is doing what it can to maintain its dividend in FY 2021. This would mean a fully franked dividend of 16 cents per share, which is the equivalent of a 5.7% dividend yield.
Wesfarmers Ltd (ASX: WES)
Another blue chip that shares a large portion of its profits with shareholders is Wesfarmers. This is the conglomerate behind popular brands such as Kmart, Target, Officeworks, Catch, and Bunnings. The latter is now the biggest contributor of earnings following the divestment of Coles Group Ltd (ASX: COL) in 2019.
The good news for its shareholders is that the Bunnings business has been on fire in 2020 despite the pandemic. In FY 2020, Bunnings reported a 13.9% increase in revenue to $14,999 million and a 13.9% lift in earnings to $1,852 million.
One broker that is confident there will be more of the same in FY 2021, thanks partly to a favourable Federal Budget, is Macquarie. Last month it upgraded Wesfarmers’ shares to an outperform rating with a price target of $51.00. It has also pencilled in a dividend of approximately 141 cents per share. This represents a fully franked ~3% dividend yield.