The 3 highest yielding ASX dividend shares are paying around 8% and more. Is this sustainable or could it be a dividend trap?
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2020 was a year where quality dividends came few and far in between. Household ASX dividend shares including the big four banks opted to slash payouts, while many shares in sectors heavily affected by COVID-19 had to defer dividends entirely.
For some ASX 200 dividend shares, revenue and cash flows remained consistent or even improved throughout the height of COVID-19 in Australia. Here are the highest yielding dividend shares in the ASX 200.
1. Fortescue Metals Group Limited (ASX: FMG)
Soaring iron ore prices lifted Fortescue’s earnings in 2020. The company reported a 49% increase in net profit after tax to US$4.7 billion and earnings per share of US$1.54 in FY20. Fortescue investors enjoyed the best of both worlds, with triple digit capital gains and $1.760 paid out in dividends in 2020.
At today’s prices, the company is paying a fully franked dividend yield of 8.80%. For some businesses where revenues might not be growing or a crashing share price is the reason behind a high yield, Fortescue is in a highly profitable position to pay dividends. Current iron ore prices have further helped ASX iron ore miners, pushing the likes of BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue into record territory.
2. Centuria Office REIT (ASX: COF)
The Centuria Office share price has slumped more than 25% from pre-COVID levels. However, the company’s rent collections have remained strong throughout the pandemic, with first quarter FY21 averaging 94% across the portfolio. Rent collections for the fourth quarter of FY20 also improved, averaging 96%, an increase from the reported 89% announced on 2 July 2020.
Fund Manager Grant Nichols commented, “Despite the ongoing impacts from COVID-19, we continue to generate a solid amount of leasing activity, with tenants attracted to the quality, highly connected and affordable office space that the COF portfolio provides. The leasing activity also indicates that tenants continue to value office space as a central workplace, essential to maintaining productivity and culture.
Real estate remains an attractive sector for income, and at today’s prices, Centuria Office is yielding 8.00%.
3. AGL Energy Limited (ASX: AGL)
The AGL share price went in one direction last year, and that direction was down. Its shares flopped 40% in 2020, and continue to set new 52-month lows in the new year.
In December, AGL revised its profit guidance for FY21, expecting net profit after tax to be in the range of $500 million to $580 million, down from the $560 million to $660 million it previously flagged. The company blamed the recent incident at its Liddell power plant, as well as a warmer winter and unfavourable wholesale electricity market for the revision.
Brokers are concerned with AGL’s earnings, with UBS downgrading its share price target to $12.25 and Citi lowering its price target to $12.16 in December 2020. The brokers blame the company’s ongoing struggle with margins and soft demand, which could impact earnings by as much as 12% and knock it out of its position as a high yielding ASX 200 dividend share.
AGL paid out 98 cents in dividends in 2020, and currently yields approximately 7.90%.
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Returns As of 6th October 2020
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Motley Fool contributor Lina Lim 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.