There are some ASX dividend shares with really big forecast yields for FY21 right now.
Trying to find high-yield businesses comes with its own set of risks and opportunities. Dividends can be less volatile than share prices, but they are certainly not guaranteed.
These two businesses are expected to pay very big dividends in FY21:
Fortescue Metals Group Limited (ASX: FMG)
Fortescue is one of Australia’s, and the world’s, biggest iron ore miners. It is generating high levels of profit right now thanks to the demand from China and the high iron ore price.
The broker Credit Suisse rates the Fortescue share price as a buy and has a price target of $23.50 on Fortescue. For income investors, Credit Suisse is expecting Fortescue to pay a dividend of $3.63 per share in FY21, which translates to a grossed-up dividend yield of 25%.
One of the main changes about the ASX dividend share recently has been its announced plan that it wants to be carbon neutral by 2030. A key part of this is Fortescue Future Industries, which is looking to develop green electricity, green hydrogen and green ammonia projects in Australia.
Fortescue Chair Dr Andrew Forrest explained:
We are trialling and demonstrating green hydrogen technologies in global-scale commercial environments, while also rapidly evolving into a green hydrogen and electricity producer of similar scale.
Our commitment to demonstrate green hydrogen’s economic value in world-scale operations, and become a major energy exporter, while implementing the considerable facilities to support both, means that Fortescue has emerged not simply as a thought-leader and investor, but uniquely as an executor of major green hydrogen projects.
Our aim is to provide the two “missing links” in the climate change battle, to create both the demand and the supply of green hydrogen. Due to its high energy performance and environmental neutrality, green hydrogen and direct green electricity has the potential to eliminate fossil fuels from supply chains. Once established, these advances will also substantially reduce Fortescue’s operating costs.
Adairs Ltd (ASX: ADH)
Adairs is one of the leading home furnishings retailers in the country. The broker Morgans has a buy rating on Adairs, with a price target of $4.50. Morgans is expecting Adairs to pay a dividend of $0.31 per share, which translates to a grossed-up dividend yield of 11.6%.
The ASX share generated a lot of operating leverage in the first half of FY21 where it saw an improvement of the gross profit margin of 500 basis points, with the Adairs division seeing an improvement of 690 basis points, whilst the Mocka division improved the gross margin by 230 basis points to 53.4%.
It’s generating a lot of sales growth through its online channel at the moment. Online sales increased by 95.3% to $62.2 million.
The ASX dividend share’s management is particularly pleased with its ‘linen lover club’ membership, which now has more than 900,000 members. Adairs says these customers are the most engaged and the company can individually provide offers based on historic purchases and preferred shopping channel. The linen lovers continue to account for around 75% of all sales.
An area of future improvement is the national distribution centre in Melbourne, which is currently under construction and should be operational in the first quarter of FY22. It’s expected to deliver annual savings of around $3.5 million per annum once fully operational. This will improve stock flow and online fulfilment as well as stock availability.
According to Morgans, the Adairs share price is valued at 9x FY21’s estimated earnings.
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Returns As of 15th February 2021
Tristan Harrison owns shares of Fortescue Metals Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends ADAIRS FPO. The Motley Fool Australia has recommended ADAIRS FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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