Insights

3 ASX dividend shares rated as buys by brokers

Brokers are eyeing up a number of ASX dividend shares that could be worth buying. One of the buy ideas is Aurizon Holdings Ltd (ASX:AZJ).
The post 3 ASX dividend shares rated as buys by brokers appeared first on Motley Fool Australia. –

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It can be an interesting insight to know what brokers think of an ASX dividend share. The problem is that a single broker can be wrong or biased.

If you can get a consensus among brokers about which shares are best, then that may give a clue about what to buy and what to avoid.

Every so often MarketIndex collates the broker recommendations of 150 ASX shares and totals the buys, holds and sells for those shares. The higher or lower the average score the more of a strong buy, buy, hold, sell or strong sell that share is.

The below ideas have dividend yields above 5% and a market capitalisation above $1 billion. However, a high dividend yield can indicate a falling share price or limited growth prospects.

Here are three of the ASX dividend shares that fit the bill:

Pendal Group Ltd (ASX: PDL)

Pendal is a global fund manager with a variety of different investment strategies and it has offices in Australia and places like London, Singapore and New York.

The Pendal share price is down 38% since the start of the COVID-19 crash. The ASX share has recovered to $5.48 at the time of writing, it was as low as $3.44 during March 2020.

Market movements can be a doubled edged sword for fund managers. When things are going well the funds under management (FUM) organically rises from capital growth and it may also see pleasing levels of fund inflows. However, market crashes can cause the FUM to plummet and people may also take their money out of the fund manager.

The Pendal FUM update for the quarter ending 30 June 2020 showed an attractive 4% increase in FUM to $89.4 billion, however that was largely due to market movements because the ASX share actually suffered a $2.5 billion net outflow of funds.

Pendal may seem cheap on a trailing basis with a trailing grossed-up dividend yield of 10.4%. However, I don’t think the next 12 months of dividends will be that good. But the Pendal share price could recover nicely if FUM can rise in the shorter-term.

Aurizon Holdings Ltd (ASX: AZJ)

Railroad business Aurizon is an interesting dividend idea. It obviously benefits from the large amount of resources that are transported around Australia.

The Aurizon share price has fallen 29% over the past year and it’s down 21% since the start of the COVID-19 crash.

Thankfully, the FY20 result from the ASX share was actually fairly good. Revenue rose by 5% to $3 billion, underlying net profit grew 12% to $531 million and statutory net profit rose 28% to $605 million.

For income investors, Aurizon grew its total FY20 dividend by 15% to 27.4 cents per share. That equates to a current partially franked dividend yield of 6.35%.

Expectations of lower earnings in FY21 has probably dampened investor demand for Aurizon shares.

Origin Energy Ltd (ASX: ORG)

Energy businesses have gone through a tough time in recent months because of COVID-19.

The Origin share price is down 42% since the COVID-19 crash and it has actually fallen 19% since the end of August 2020.

The fall in the share price has helped boost the trailing dividend yield to 5.5%.

Excluding impairments, the FY20 profit of the ASX share was actually flat whilst free cashflow improved by about $100 million.

Origin seemed to indicate lower profit in FY21 when it provided its guidance for this financial year.

I’m not sure if Origin’s board will decide to maintain the annual dividend payment at $0.25 per share, or reduce it to $0.20 after the $0.10 final FY20 dividend.

Foolish takeaway

I don’t think the dividends of Origin or Pendal are safe, whilst Aurizon’s link to commodities makes me a little uneasy because I don’t like investing in resources. Of the three, I’d probably go for Aurizon.

For a commodity-type income play I think something like Vitalharvest Freehold Trust (ASX: VTH) could be a better option as its distribution floor seems to be a current yield of 6% with growth potential.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Aurizon Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post 3 ASX dividend shares rated as buys by brokers appeared first on Motley Fool Australia.

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