National Australia Bank Ltd (ASX: NAB) and Alumina Ltd (ASX: AWC) may have higher dividend yields than the companies I’m going to mention, but I think these are safer.
Investors looking for dividend shares are typically looking for a stable source of income. So, while you could invest in NAB and make nearly 8% from dividends, do you want to hold the shares while they revaluate the way they do business in the wake of the royal commission? Sounds risky.
Here are some other options…
BHP Group Ltd (ASX: BHP)
BHP is one of the largest companies listed on the ASX. It is a world-leading resources company with more than 62,000 employees and contractors and products that are sold worldwide.
In other words, BHP is a very stable company. The BHP share price is rarely volatile, but lately it has been on an upward trend, increasing 36% over the last 12 months.
The trailing dividend yield is currently 4.44% and fully franked, which is by no means the best dividend yield you could get on the ASX. But, as I said, dividend investors are investing for income, and most people want their income to be stable and reliable. This yield is also still far above the rate you can get in an Australian bank account or with most bonds.
A similar company offering a similar dividend yield is Rio Tinto Ltd (ASX: RIO). This “BHP Vs. Rio” article explores the similarities and differences between the two companies, and which one to consider buying.
Macquarie Group Ltd (ASX: MQG)
Macquarie is not usually the bank that gets a mention when discussing dividend income, but I think there’s a case to be made.
Like BHP, Macquarie is not offering the highest dividend yield on the ASX: it is currently 4.24%, with a partial franking rate of 45%.
But, while the Big 4 banks are picking up the pieces from the royal commission, Macquarie is thriving. 1H19 net profit was up 5% on 1H18 and they’re maintaining a return on equity around 16-17%. For FY19, they’re expecting overall growth of 15%.
Here’s the kicker: the five-year compound annual growth rate of their dividend is 21%. Macquarie may not have the highest dividend yield right now, but they are consistently growing their dividend and increasing the franking rate while they do it.
On top of this, the share price is up nearly 22% over the last 12 months. Macquarie was explored in greater detail in an article I recently wrote, why I would buy Macquarie shares over CBA shares.
Is It Time To Buy?
Maybe not today.
Macquarie is trading close to an all-time high, and BHP is not far off its highs either.
Having said that, the key message still holds — sometimes, it can be worth sacrificing some of your dividend yield to buy a more stable company or a company that will provide you with dividend income and capital growth.
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Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.