If you’re on the hunt for ASX income shares, now could be as good of a time as any to begin researching shares like BHP Group Ltd (ASX: BHP), Newcrest Mining Limited (ASX: NCM) and Commonwealth Bank of Australia (ASX: CBA).
However, before you go ahead and invest in anything, please make sure you follow the steps our lead investment analyst laid out in this fantastic article: “4 ways to protect your share portfolio in a market crash”
Are ASX income shares worth the risk?
One of the best things about investing on the Australian share market is the ability to generate long-term dividend income. Sometimes, these companies pay their dividends every six months (known as the interim and final dividends), or just one dividend per year.
What makes Australian dividends so special is that Aussie companies often pay dividends with something called ‘franking credits’. Franking credits are like tax credits stored at the tax office (ATO) until you file your tax returns and claim them. In a low-interest rate environment, these are especially tempting for SMSFs and other investors who want to compound their investment portfolio by activating reinvesting for the long run.
The following Rask Finance video explains franking credits in more detail. To subscribe to our YouTube channel and get the latest stock videos and new (it’s completely free), simply click here.
3 ASX income shares to put on your watchlist today…
1. BHP Group – historical dividend yield: 5.8%
BHP is a world-leading resources company, extracting and processing minerals (like iron ore and copper), oil and gas, and has more than 62,000 employees and contractors, primarily in Australia and the Americas. Headquartered in Melbourne, BHP has shares listed on both the ASX and London Stock Exchange (BHP Billiton Plc).
While BHP is yet to make a specific announcement to investors explaining how the company will be impacted by the COVID-19 outbreak, we do know that CEO Mike Henry was monitoring the situation when the company released its half-year report in February.
“Despite near term uncertainty – due to the coronavirus outbreak, trade policy and geopolitics – we remain convinced about the positive underlying fundamentals of our commodities,” Henry said.
“We see enormous potential to reliably deliver exceptional financial and operational performance, and to grow value and returns.”
BHP added that the coronavirus uncertainty could impact cash flows and dividend payments in time, and its preference was to keep its net debt (cash minus debt) towards $US12 billion. I find it a little unsettling that we haven’t heard more from the company because we know its resources are dependent on Chinese buyers, which were already impacted, and a big part of BHP’s operational teams are in the USA and Europe.
2. Newcrest Mining – historical dividend yield: 1.2%
Newcrest is the largest gold producer listed on the Australian Securities Exchange and one of the world’s largest gold mining companies. As of 2020, its major operations in New South Wales’ Cadia Valley, Telfer in Western Australia, and Lihir in Papua New Guinea (PNG).
While a 1.2% historical dividend yield doesn’t sound like much, Newcrest shareholders are currently benefitting from the falling Australian dollar and robust gold prices. Since the beginning of 2020 Newcrest shares are down just 14% versus the S&P/ASX 200 (INDEXASX: XJO) which is down 26%.
With the company releasing updated annual gold production guidance to between 2,100 and 2,200koz, I think Newcrest could be one surprising gold stock to watch closely in 2020.
3. CBA – historical dividend yield: 5%
Commonwealth Bank of Australia or CBA is Australia’s largest bank, with commanding market share of the mortgages (24%), credit cards (27%) and personal lending markets. It has 16.1 million customers, 14.1 million are in Australia. It is entrenched in the Australian payments ecosystem and financial marketplace.
Australia’s big banks are in a world of uncertainty right now. As one of our analysts wrote earlier this week, “What CBA and NAB shareholders can expect next” it’s possible (and he thinks likely) the banks will cut their dividends as bad debts rise, unemployment ticks higher and the banks try to contend with lower interest rates.
You can think of lower interest rates are ‘crimping’ the profit margins banks can achieve when they lend money to investors and homeowners. These are net interest margins (NIMs). Following the Royal Commission and sale of the bank’s wealth management business, it’s unlikely CBA will continue to be the steller dividend stock it was for the last decade.
Buy, hold or sell?
Right now, despite the flashing share prices, emotion and recent volatility in the market there’s no need to rush into any investment decisions. In fact, right now, you could actually make money by doing nothing!
Right now, I think CBA shares are probably one to avoid, at least until we know how its customers are responding to recent stimulus packages and we get a better idea of how bad Australia’s recession is going to be. Again, please refer to our article and the video on how to protect a stock portfolio during a market crash.
Newcrest is probably the most interesting for me, if only as a small position (e.g. 5%) in a diversified portfolio. Unless its production shuts down completely (which is possible) the company might be able to provide some cushioning to the recent share market sell-offs and could pay a handy, albeit small, fully franked dividend yield to shareholders.
That said, I’d much rather buy the 3 shares in the free report below before doing anything.
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Disclosure: At the time of publishing, the author of this article does not have a financial interest in any of the companies mentioned.