Right now, Macquarie Group Ltd (ASX: MQG) shares, Bendigo and Adelaide Bank Ltd (ASX: BEN) shares and Westpac Banking Corp (ASX: WBC) shares offer hefty franked dividends to shareholders.
Are ASX Income Shares Worth It?
One of the best things about investing on the Australian share market is the ability to generate long-term dividend income. Not only that, oftentimes our companies pay dividends with generous ‘franking credits’. Franking credits are like tax credits stored at the tax office (ATO) until you file your tax returns and claim them. I explain Franking Credits in the following Rask Finance video:
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Dividend Shares: There Are Risks
Before you go and buy dividend shares simply because interest rates are very low, it’s important to keep in mind there are risks involved. Obviously, shares are higher risk than term deposits and savings accounts. I think it’s best to invest in shares for 5+ years.
What’s more, unlike rent from an investment property there’s no contract or guarantee that a company will pay dividends each and every year. The board of a company has discretion over if, when and how a dividend will be paid to shareholders.
For those reasons, in this article, I’ve used the trailing dividends of the companies to determine the current yield on the shares (see below).
With that disclaimer in mind, here are three ASX dividend income shares to put on your watchlist today…
1. Macquarie – trailing yield: 4%
Macquarie is our country’s largest investment bank with operations spread throughout North America, Europe, Middle East, Asia and Australia. Unlike a traditional ‘retail’ bank, like most investment banks Macquarie makes a large chunk of its profit by operating in the investment markets and managing ‘assets’ for individuals and organisations. As of 2018, Macquarie had reported a profit for 49 years in a row.
Unlike more retail-focused banks such as Commonwealth Bank of Australia (ASX: CBA), Macquarie shares are a little harder to value because the bank operates in many markets and via many different channels. Nonetheless, Macquarie’s management has done a terrific job of righting the ship since it was almost wiped out during the Global Financial Crisis.
With long-term growth prospects, Macquarie deserves a spot on savvy investors’ watchlists,
2. Bendigo and Adelaide Bank – trailing yield: 6%
Bendigo and Adelaide Bank was formed following the merger of Bendigo Bank and Adelaide Bank in November 2007. The bank operates primarily within the retail banking space and has a network of more than 500 branches and agencies across Australia, predominantly on the East Coast and South Australia.
Alongside Bank of Queensland (ASX: BOQ) and credit unions, Bendigo Bank is often viewed as a ‘regional’ or second-tier bank. This has implications for the bank. For example, Bendigo Bank seems to have less of an advantage than the ‘Big Four’ banks when it comes to sourcing debt from global markets and in terms of customer reach. Recently, Bendigo Bank reported a decline in profit.
For my money, I’d rather avoid bank shares like Bendigo Bank and opt for the larger, more advantaged banks. Better still, I’d buy a low cost and diversified ETF for fully franked income.
3. Westpac Banking – trailing yield: 6%
Westpac Banking Group, more commonly known as Westpac, is one of Australia’s ‘Big Four’ banks and a financial services provider headquartered in Sydney. It is one of Australia’s largest lenders to homeowners, investors, individuals (via credit cards and personal loans) and business. Alongside CBA, Westpac has been the dominant force in Aussie household banking.
However, with a slowing Australian economy and lacklustre wage growth, I think investors and shareholders would be wise to critique banks such as Westpac. I consider any bank that has a large proportion of its loan book in interest-only debts and financing to investors as higher risk.
If house prices fall, I wouldn’t want to be caught holding a bank whose asset base is extremely sensitive to changes in short-term credit/debt markets or rising bad debts.
Buy, Hold Or Sell?
ASX bank shares have been rewarding for investors who took the risk on them since Westpac almost went bust in the early 90s. In 2019, I’m not in a rush to buy Australian bank shares. If you forced me, I’d probably go with CBA or National Australia Bank (ASX: NAB) over these three. But with over 2,000 shares here in Australia I know I can be patient and wait for the best opportunities.
For example, the three dividend shares in the report below are more appealing to me in 2019.
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Disclosure: At the time of publishing, Owen does not have a financial interest in any of the companies mentioned.
