With interest rates unlikely to be going higher in the near future, ASX dividend shares look set to remain the best place to earn a passive income.
But which ASX dividend shares should you buy? Two blue chips that are highly rated are listed below:
BHP Group Ltd (ASX: BHP)
The first ASX dividend share to consider is BHP. This mining giant is expected to generate significant free cash flow in the near term thanks to very favourable commodity prices.
For example, due to sky high iron ore and copper prices, during the first half of FY 2021, the Big Australian reported a 15% increase in revenue to US$25.64 billion and a 21% jump in underlying EBITDA to US$14.7 billion. This led to BHP generating US$5.2 billion of free cash flow, with the vast majority of it returning to shareholders through dividends.
Goldman Sachs expects more of the same in the second half and into next year. As a result, it is forecasting dividends of $2.31 per share in FY 2021 and $2.13 per share in FY 2022.
Based on the current BHP share price of $45.65, this equates to fully franked 5.1% and 4.7% dividend yields. Goldman has a buy rating and $53.40 price target on its shares.
Westpac Banking Corp (ASX: WBC)
Another ASX dividend share to consider is Westpac. Like BHP, Westpac has been performing strongly so far in FY 2021.
In February the bank released its first quarter update and reported a $1.97 billion first quarter cash profit. This was more than double the average quarterly cash profit it recorded during the second half of FY 2020.
But perhaps the most positive aspect of its result was the reversing of provisions. With the Australian economy faring materially better than expected during the pandemic, Australia's oldest bank reversed ~$500 million of COVID-19 related impairments.
This leaves the bank in a very strong position financially. So much so, some analysts are tipping Westpac to launch capital initiatives such as a share buyback program in FY 2022.
One broker that believes the Westpac share price is in the buy zone is Morgans. It currently has an add rating and $27.50 price target on the bank's shares.
The broker is also forecasting dividends of $1.32 per share in FY 2021 and then $1.43 per share in FY 2022. Based on the latest Westpac share price of $24.54, this will mean fully franked yields of 5.4% and 5.8%.
