Income investors: 3 ASX dividend shares that could rally in 2024

Don't just grab the stocks with the highest yields. Check out these picks that have potential to bring back capital growth too.

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Selecting ASX dividend shares to invest in is tricky business.

On face value, it's very tempting to just pick out stocks that have high dividend yields. But this is a dangerous path to take.

Webull Securities Australia chief Rob Talevski explained that this is because the current yield says nothing about the forward outlook.

"Even if a company has provided its investors with strong dividends in the past, it needs reliable earnings in the future to continue this pattern."

Another difficulty with dividend stocks is some sectors can see very cyclical fortunes that could make future payouts wildly fluctuate.

"For example, we know that energy and resources companies can provide powerful earnings windfalls during pro-cyclical times of higher commodity and consumer prices, but counter-cyclical periods of weaker prices and trade interruptions can impact earnings and, subsequently, dividend payouts."

Remembering this advice, here are three ASX dividend shares deliberately in different sectors that are looking bullish for next year:

Dividend stock #1: lithium

Global lithium prices have plunged this year due to economic weakness, so it's no surprise a miner like IGO Ltd (ASX: IGO) has lost almost half of its valuation since mid-July.

But that has brought the dividend yield up to an amazing 8.6% fully franked, and given the share price excellent upside.

The team at Blackwattle has high conviction on IGO and the lithium industry.

"We remain positive on the long-run outlook for lithium demand and favour miners that have long reserve lives and are first and second quartiles on the cost curve," read its memo to clients last week.

"With C1 [net direct cash cost] and capital costs rising rapidly across the industry, we believe supply growth will be slower than consensus forecasts."

Dividend stock #2: real estate

Growthpoint Properties Australia Ltd (ASX: GOZ) is a real estate investment trust (REIT) of office and industrial properties.

Similar to IGO, the valuation has fallen this year, pushing the yield up to 9.2% unfranked.

And with the share price now more than 42% lower than the latest net tangible asset value (NTA), any recovery in the real estate sector after interest rates peak could make this an absolute bargain.

According to CMC Invest, four out of six analysts currently rate Growthpoint Properties as a strong buy.

Dividend stock #3: energy

Finally, in the energy sector, plenty of experts reckon Santos Ltd (ASX: STO) is in for a big 2024.

The share price has dipped more than 14% since 20 October, presenting a buying window at the moment.

The oil and gas producer is now rated as a buy by 14 out of 16 analysts, as shown on CMC Invest.

There is even talk that the depressed valuation would make Santos a tempting takeover target for larger overseas energy producers.

"We believe the stock provides good value at these levels on top of appealing capital returns," Seneca Financial Solutions advisor Tony Langford said last week.

Santos shares currently pay out an unfranked dividend yield of 5.2%.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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