This underperforming ASX large cap is sitting on a ~10% dividend yield

Treasure hunters seeking dividend gems might find this ASX share particularly enticing as it could be the last of the large caps with a gross yield that’s close to 10%.

| More on:
Aurizon ASX dividend share yield of ten percent represented by gold balloons in the form of symbols ten percent

Image source: Getty Images

Treasure hunters seeking dividend gems might find this ASX share particularly enticing as it could be the last of the large caps with a gross yield that’s close to 10%.

The ASX share in question is the underperforming Aurizon Holdings Ltd (ASX: AZJ) share price. The rail operator has been under a cloud due to earnings worries.

But this is no dividend trap, at least not according to the analysts at Macquarie Group Ltd (ASX: MQG).

Aurizon’s dividend set to rise

If anything, the broker is forecasting Aurizon to lift dividends for the next three years, if not longer.

As it stands, the company is tipped to pay a 28 cents distribution in FY20, which will be 70% franked. This means the current Aurizon share price of $3.95 is sitting on a yield of 9.2% if franking is included!

The dividend increases to 29.2 cents in FY22 and 30.4 cents the year after, based on Macquarie’s projections.

The Aurizon share price is a rare find on the ASX

You would be hard pressed to find another large cap with a grossed-up yield that’s this close to double-digit. This is particularly so now that the Telstra Corporation Ltd (ASX: TLS) share price has rallied hard.

It’s the same story among the ASX big banks. These ASX shares, such as the Westpac Banking Corp (ASX: WBC) share price and National Australia Bank Ltd. (ASX: NAB) share price, have rebounded to multi-year highs.

That same can’t be said for the Aurizon share price. That slumped close to 11% over the past year when the S&P/ASX 200 Index (Index:^AXJO) surged by nearly 30%.

Coal drags on the Aurizon share price

Just as with climate change, you can blame coal for Aurizon’s misfortunes. The amount of the commodity that Aurizon had been hauling crashed due to bad weather and equipment failure.

It also doesn’t help that an increasing number of investors are turning their backs on ASX shares that are exposed to the environmentally unfriendly fuel.

However, Aurizon also hauls iron ore in Western Australia and is well placed to seek out opportunities to transport crops.

Opportunities for growth outside coal

“Export volumes remain strong with Esperance/Geraldton up ~20% on pcp ie 1mt for the quarter,” said Macquarie.

“AZJ highlighted they have started some haulage for CBH, and the opportunity is to tender for the haulage work commencing May 22 (Watco holds contract currently).

“CBH has ~$110m of locomotives and rolling stock, which is an opportunity for AZJ to expand the offering, leveraging the iron ore locomotives and maintenance facilities.”

Macquarie is recommending the Aurion share price as “outperform” with a 12-month price target of $4.40 a share.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

Motley Fool contributor Brendon Lau owns shares of National Australia Bank Limited, Telstra Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Aurizon Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Dividend Investing