Seeking retirement income from ASX bank shares at 52-week highs? What I'd buy instead

I'm banking on other stocks for my dividends.

Man holding out Australian dollar notes, symbolising dividends.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A number of ASX bank shares are hitting 52-week highs, but I'm not calling them buys at this price. There are other ASX dividend shares I'd look to for income.

ANZ Group Holdings Ltd (ASX: ANZ) shares, National Australia Bank Ltd (ASX: NAB) shares and Westpac Banking Group (ASX: WBC) shares all hit 52-week highs today.

Buying ASX bank shares at such high levels doesn't strike me as good value. Not only are they trading at a high price/earnings (P/E) ratio, but it also means the dividend yields have been pushed lower.

Instead, there are other two main groups of shares I'd look at for opportunities.

High dividend yield

With the banks' yields now smaller than before, I think there are plenty of other companies capable of producing better dividend yields, and those stocks may be able to grow the dividends in the coming years.

I think some companies that could pay big yields in the coming years include GQG Partners Inc (ASX: GQG), Medibank Private Ltd (ASX: MPL), Telstra Group Ltd (ASX: TLS), Universal Store Holdings Ltd (ASX: UNI), Accent Group Ltd (ASX: AX1), Duxton Water Ltd (ASX: D2O) and Metcash Ltd (ASX: MTS).

I believe all of these ASX dividend shares can pay more substantial dividends over time than the big banks.

It could also be worth looking at real estate investment trusts (REITs) because they offer stable rental income and good yields, while the prospect of falling interest rates could boost valuations. Four of my favourites include Rural Funds Group (ASX: RFF), Centuria Industrial REIT (ASX: CIP), Charter Hall Long WALE REIT (ASX: CLW) and Healthco Healthcare and Wellness REIT (ASX: HCW).

Dividend growers

I like businesses that are capable of growing profit over time because that can drive both the underlying value of the business as well as the dividend.

However, these sorts of businesses normally have a lower dividend yield because the market is pricing in longer-term growth expectations. Plus, those businesses are typically retaining more profit to invest for growth.

I think there's a good chance that dividend growers can deliver better total returns than ASX bank shares over the next three or five years.

Some of my favourites include Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW), Duxton Water, Sonic Healthcare Ltd (ASX: SHL), Wesfarmers Ltd (ASX: WES), Pinnacle Investment Management Group Ltd (ASX: PNI) and Johns Lyng Group Ltd (ASX: JLG).

Motley Fool contributor Tristan Harrison has positions in Accent Group, Brickworks, Duxton Water, Johns Lyng Group, Metcash, Pinnacle Investment Management Group, Rural Funds Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, Johns Lyng Group, Pinnacle Investment Management Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Brickworks, Pinnacle Investment Management Group, Rural Funds Group, Telstra Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has recommended Accent Group, Johns Lyng Group, Metcash, and Sonic Healthcare. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

Two excited woman pointing out a bargain opportunity on a laptop.
Dividend Investing

With 8%+ dividends, how long can these ASX 200 passive income shares stay cheap?

I think ASX 200 investors looking for ‘cheap’ passive income shares will want to check these out.

Read more »

A smiling woman puts fuel into her car at a petrol pump.
Dividend Investing

Where I'd invest $5,000 in ASX shares now for $1,000 of dividend income

The ASX offers a rich hunting ground for dividend income.

Read more »

a woman holds a facebook like thumbs up sign high above her head. She has a very happy smile on her face.
Dividend Investing

Bell Potter names the best ASX 300 dividend shares to buy

The broker has good things to say about these shares.

Read more »

Middle age caucasian man smiling confident drinking coffee at home.
Dividend Investing

Buy these ASX dividend stocks for passive income

Analysts expect attractive dividend yields from these shares.

Read more »

A male sharemarket analyst sits at his desk looking intently at his laptop with two other monitors next to him showing stock price movements
Dividend Investing

Goldman Sachs names 3 super-strong ASX 200 dividend shares to buy

The broker is feeling bullish about these blue chip options.

Read more »

Male hands holding Australian dollar banknotes, symbolising dividends.
Bank Shares

Do the dividends from ANZ shares still come fully franked?

Is ANZ becoming a big four bank that doesn't frank its dividends?

Read more »

Woman in celebratory fist move looking at phone
Dividend Investing

Buy this cheap ASX 300 stock for a 26% return

Analysts expect big returns from this undervalued stock.

Read more »

A woman has a thoughtful look on her face as she studies a fan of Australian 20 dollar bills she is holding on one hand while he rest her other hand on her chin in thought.
Dividend Investing

This 7% yield ASX 200 stock trades ex-dividend next week. Should you buy?

Do analysts think investors should buy this high-yield share?

Read more »