Here’s why I think income investors should buy Fortescue Metals Group Limited (ASX:FMG) and this high yield dividend share…
The post I would buy Fortescue (ASX:FMG) and this high yield ASX dividend share appeared first on Motley Fool Australia. –
The Australian share market is home to a large number of companies that share their profits with shareholders in the form of dividends.
This is particularly fortunate given how hard it is becoming to generate a sufficient income from other interest-bearing assets.
Two dividend shares that stand out to me as being great investment options are listed below. Here’s why I would buy them:
Aventus Group (ASX: AVN)
Aventus is a retail property company which owns and operates 20 large format retail parks across Australia. Positively, unlike Scentre Group (ASX: SCG) and its shopping centres, Aventus’ properties have continued to experience strong traffic during the pandemic. This has been driven largely by their high weighting towards everyday needs through tenants such as ALDI, Bunnings, Officeworks, and The Good Guys.
It was thanks to this that Aventus was able to collect the vast majority of its rent as normal in FY 2020 despite the pandemic. In fact, rent collections came in at 87% during the COVID-19 period and its occupancy rate was almost at capacity at 98%. This underpinned a 4.2% increase in funds from operations (FFO) to $100 million during the year. I’m expecting a similarly solid year in FY 2021. Based on this and the latest Aventus share price, I estimate that it offers a generous 5.5% yield.
Fortescue Metals Group Limited (ASX: FMG)
Another high yield ASX dividend share I would buy is Fortescue. I’m a big fan of the iron ore producer due to its world class, low cost operations and improving grades. This has allowed the mining giant to benefit greatly from the high prices that iron ore is commanding at present. Speaking of which, thanks to the improving outlook for steel production in China and tight market conditions, I expect iron ore prices to average ~US$100 a tonne in 2021.
Overall, this should put Fortescue in a position to deliver high levels of free cash flow again in FY 2021. And thanks to the strength of its balance sheet, it seems very likely that the majority of this will be returned to shareholders via buybacks and dividends. Based on the latest Fortescue share price, I estimate that it will provide investors with a 6% fully franked yield this year. However, if iron ore prices remain at elevated levels for longer than expected, this yield could be materially higher.
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Returns As of 6th October 2020
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended AVENTUS RE UNIT. 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.