With interest rates at record lows and unlikely to go higher for some time, it is increasingly difficult for income investors to earn a sufficient income from traditional interest-bearing assets.
Fortunately, the Australian share market is here to save the day with a large number of dividend shares offering far more generous yields.
Two ASX dividend shares to buy are listed below:
Fortescue Metals Group Limited (ASX: FMG)
Fortescue is a leading iron ore producer with world class and ultra-low cost operations. Combined with its improving grades and sky high iron ore prices, Fortescue is generating significant free cash flows at present. And with the outlook for steel production in China improving and market conditions remaining relatively tight, experts are tipping iron ore prices to average above ~US$100 a tonne in 2021. This compares to Fortescue's current C1 costs of US$12.74 per wet metric tonne.
One broker that is confident on its prospects is Macquarie. It notes that strong iron ore prices are currently providing a free cash flow yield of ~17%. In light of this, the broker is forecasting a bumper dividend payment in FY 2021 of approximately $1.64 per share fully franked. Based on the current Fortescue share price, this equates to a massive 9.7% dividend yield. Macquarie has an outperform rating and $20.00 price target on its shares.
Telstra Corporation Ltd (ASX: TLS)
With its T22 strategy delivering on its objectives, the NBN headwind easing, and 5G internet taking off, this telco giant's outlook has improved greatly in recent months. In addition to this, the company's plan to split into three separate entities has been well received by the market and is expected to create value for shareholders.
The latter plan has gone down particularly well with analysts at Credit Suisse, who believe it reinforces its view around the underlying value of its assets. The broker also believes Telstra is well-placed to maintain its 16 cents per share dividend for the foreseeable future. Based on the current Telstra share price, this means a fully franked 5.3% dividend yield. Credit Suisse has an outperform rating and $3.85 price target on its shares.
