2 ASX shares that brokers reckon might be dividend traps

Which ASX dividend shares could be an income trap in 2022 and beyond?
The post 2 ASX shares that brokers reckon might be dividend traps appeared first on The Motley Fool Australia. –

When it comes to ASX dividend shares, finding a share that will consistently give you a high yield is a popular goal. And finding one that can keep delivering dividend increases might be the Holy Grail.

But dividend investors also have to be ever-watchful for the dreaded ‘dividend trap’. This describes the situation where an investor buys an ASX dividend share under the pretext of assuming that its trailing dividend yield will be consistent going forward, only to have the company cut its dividend afterwards. This not only results in a loss of potential dividend income but can also come with a capital loss as investors re-rate the shares’ valuation accordingly.

So here are 2 ASX dividend shares that according to CommSec broker Goldman Sachs, might treat investors to such a situation.

2 ASX shares that could be dividend traps

AGL Energy Limited (ASX: AGL)

AGL shares have not had much of a fun time lately. The AGL share price is currently trading at $9.04, down 25% year to date and almost 50% over the past 12 months. Falling earnings, a difficult national electricity market and the declining value of some of AGL’s energy generation assets (mainly coal-fired power plants) are most likely behind this. This decline has given AGL shares a seemingly attractive trailing dividend yield of 9.07%.

But Goldman reckons that the 98 cents per share in dividends that AGL paid out to investors in FY2020 will fall to 74 cents for FY2021, 72 cents for  FY2022 and 56 cents for FY2023. I’m sure shareholders will be hoping that doesn’t play out.

Fortescue Metals Group Limited (ASX: FMG)

Fortescue has been a top S&P/ASX 200 Index (ASX: XJO) performer over the past year, with Fortescue shares up 51.5%. They are also up a staggering 600% in the past 5 years. And those number’s aren’t even including the hefty dividends the iron ore giant has paid out either. These lofty gains are likely the result of a rampaging iron ore price, which has spent much of 2021 at historically high prices above US$200 a tonne.

On the current Fortescue share price, the company has a whopping 10.96% trailing dividend yield. Goldman expects Fortescue to pay out US$2.37 ($3.06) in dividends in FY2021, up substantially from the US$1.18 ($1.52) it paid out in FY2020. However, it also is expecting these dividends to fall to US$1.26 ($1.63) per share in FY2022 and 81 US cents ($1.05) by FY2023. That would be a substantial income haircut if Goldman’s expectations translate to reality.

The post 2 ASX shares that brokers reckon might be dividend traps appeared first on The Motley Fool Australia.

These Dividend Stocks Could Be Your Next Cash Kings (FREE REPORT)

Motley Fool Australia’s Dividend experts recently released a brand-new FREE report revealing 3 dividend stocks with JUICY franked dividends that could keep paying you meaty dividends for years to come.

Our team of investors think these 3 dividend stocks should be a ‘must consider’ for any savvy dividend investor. But more importantly, could potentially make Australian investors a heap of passive income.

Don’t miss out! Simply click the link below to grab your free copy and discover these 3 high conviction stocks now.

Returns As of 15th February 2021

More reading

The mining boom is digging us out of recession, but where to for the BHP share price?

The AGL Energy (ASX:AGL) old dog with green new tricks
Is the ASX 200’s stellar 2021 performance normal?

ASX 200 up 0.1%: Tech shares rise, Ansell names new CEO

Leading brokers name 3 ASX shares to sell today

Motley Fool contributor Sebastian Bowen 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 Bruce Jackson.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!