As we sail into 2025, it is an interesting time to be buying ASX dividend shares.
Some ASX dividend shares have spent the past 12 months climbing enthusiastically in value. These mostly include the big four ASX banks. As well as stocks like Wesfarmers Ltd (ASX: WES) and Coles Group Ltd (ASX: COL).
However, this rising tide hasn't lifted all boats. Many other popular ASX blue-chip dividend shares have been stagnant for over a year now. Income stocks that fall into this bucket include Woolworths Group Ltd (ASX: WOW), Transurban Group (ASX: TCL), and Telstra Group Ltd (ASX: TLS).
It can be hard to know exactly why some ASX dividend shares have been on the ascendency while others have been left behind. Perhaps the most likely explanation is that super fund dollars are keeping the big four banks elevated, so much so that large institutional investors are afraid to sell out of their positions.
After all, shorting the almost-universally-accepted-as-overpriced Commonwealth Bank of Australia (ASX: CBA) has come to be known as the 'widowmaker' trade.
However, I think that some ASX dividend shares have been left behind thanks to high interest rates.
When interest rates are high, income investors are less attracted to dividend-paying shares as a source of income.
After all, why buy Telstra or Woolworths shares and get a 3% to 4% dividend yield when you can get a risk-free yield of 5% or more on a government bond or term deposit?
Yet this is exactly why investors might want to pick up shares of Telstra, Woolworths or Transurban, amongst others, today. Yes, interest rates remain at a decade-high of 4.35% today.
However, consensus is building that this situation won't be static for too much longer.
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Lower interest rates could boost ASX dividend share prices
With the encouraging inflation statistics last week, most commentators are now pricing in an interest rate cut when the Reserve Bank of Australia (RBA) meets later this month. In fact, money markets are, right now, pricing in a 95% likelihood that the RBA will deliver a cut.
The RBA rarely moves rates in a certain direction just once. As such, odds are that if there is indeed a cut this month, it won't be the last one we see this year.
If interest rates do fall, then so will the interest rates investors can enjoy on risk-free assets like bonds and term deposits.
That, in turn, will make the 4.57% fully-franked dividend yield you can get from Telstra shares today look more attractive.
If rates are cut next month and again in 2025, I wouldn't be surprised to see the value of Telstra, Woolworths, Transurban, and perhaps many other forgotten income shares rebound. If this does happen, the window to secure, say, that 4.57% yield on Telstra shares might be narrowing.
