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 the only two ASX dividend shares that currently fit the bill:
Yancoal Australia Ltd (ASX: YAL) and Whitehaven Coal Ltd (ASX: WHC)
Based on the analyst ratings, the shares with decent yields across the board look relatively expensive, they are priced highly enough for nearly all shares to not be rated as a ‘buy’. Except for coal shares.
The coal price has fallen a lot over the past year and there is also a lot of climate change related pressure on coal miners too.
As a result of all of the problems facing coal businesses the coal industry is trading with cheaper share prices.
Since 1 March 2019 the Yancoal share price has fallen by 29% and the Whitehaven share price has fallen 39%.
This has had the effect of significantly boosting the trailing dividends of both coal businesses.
Yancoal now has a trailing dividend yield of 13%. Whitehaven has a trailing partially franked dividend yield of 19%.
But, just because a company has paid a dividend worth $X over the past 12 months doesn’t mean the dividends over the next 12 months will amount to the same total or even be close to the same dividend total. I think a dividend cut is quite likely.
Coal businesses may be the new cigarette businesses – high dividend yields but shunned by ‘ethical’ investors. I wouldn’t want to buy either of these businesses. Even without the climate change debate, I don’t think that coal dividends can be very reliable because of the volatility of resource prices.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020