Today, we’ll look at some blue chip stocks which are some of the best dividend stocks to buy on the ASX for 2021.
Most of these shares are already mature stocks with stable revenue and paying good dividends.
As defensive stocks, value stocks are considered a safe harbour for assets as strong established businesses are expected to weather any oncoming storms.
In addition, any rise in interest rates from inflation fears will see value stocks perform well as investors rotate out from growth stocks into value stocks.
There are three reasons for this:
- growth stocks love low yields, which gives them a higher future value;
- value stocks love higher yields and inflation as value stocks tend to be price setters;
- investors look for dividend yield to beat inflation.
Even though COVID-19 has disrupted pretty much all of these companies, these are all strong resilient blue chip stocks that are poised to bounce back, if not already.
Some of these stocks don’t have a great yield right now.
This is the symptom of low interest rates – when banks are paying basically nothing on deposits, investors are accepting lower dividend yields and driving up stock prices.
However, what is more important is that these blue chip stocks all have strong growing dividends and the yields will rise over time.
If you are looking to buy Australian blue chip stocks for the long-term and looking for a strong stable dividend yield, these are some of the best dividend stocks to buy on the ASX for 2021.
If you are looking for higher growth shares, you can check out our list of 5 best growth shares here.
For higher risk, we have a list of 5 best penny stocks that have good potential.
Best Dividend Stocks To Buy Now
The hardest part when it comes to dividend investing is to uncover shares that have the strongest most predictable revenue lines and are market leaders in their field.
Without a doubt, some of these best dividend-paying stocks will be familiar names to you and form the bedrock of many Australian stock portfolios.
Our Research team has been hard at work finding the best dividend stocks to buy now in Australia for dividend investing.
I’ve outlined 5 stocks that we feel represent some of the best dividend stocks in the Australian market.
Best Dividend Stocks on the ASX with a Good Yield
These blue chip stocks currently have a good yield and good yield growth prospects.
BHP is an Australia-headquartered mineral and petroleum conglomerate.
The company has operations in iron ore, coal, copper, nickel, crude oil, and gas.
The company’s operations span 20 countries and five continents. Mining operations are concentrated in Australia and the Americas while oil and gas activities are mostly based in the US, Trinidad, the UK, Algeria, and Australia.
In 2020, the stock was under pressure from the pandemic and the sharp deterioration in Australia’s relationship with China, its largest trading partner.
However, BHP shares witnessed a swift reversal of fortunes based on hopes of a global recovery from the pandemic.
That, and a rally in commodities with an accompanying hawkish global inflationary scenario has pushed the stock past its pre-GFC and pre-pandemic levels into an uncharted, all-time high zone.
The stock was up as much as 21% year-to-date at one point, but labour issues and climate-related events in China have triggered a correction.
However, we believe commodities are in the early stage of a long-term upcycle, and BHP shares will benefit from the trend.
At the current BHP share price, BHP shares are currently yielding 4.77% which is exceptional in the current environment.
Additionally, Goldman Sachs has projected dividend yields of 7.3%, 7.5%, and 6.3% during 2021-23, which are substantial by any standard.
Origin Energy (ASX:ORG)
Origin Energy (ASX ORG) is a leading integrated energy company and Australia’s largest energy retailer by revenue size and customer accounts.
With a new technology acquisition in play, Origin plans to improve its customer experience and reduce costs with a new highly automated platform called Kraken.
With this new platform and reduced costs, Origin could see growth in their EPS and dividends in the near future.
As a utility, Origin is a good and steady dividend play with growth potential that can add a dependable ballast to a portfolio.
Origin has recently reinstated its dividend and the board will continue to target a payout ratio of 30 to 50% of free cash flow per annum in the future.
Origin currently yields about 5.41%, fairly high in the current environment when not even banks are yielding more than 4%.
Best Dividend Stocks on the ASX with Growing Dividends
These blue chip stocks currently have a relatively low dividend yield but have strong dividend growth. You should expect the yield to catch up in the near future.
Deterra Royalties (ASX:DRR)
Deterra Royalties (ASX:DRR), the largest ASX-listed resources-focused royalty company, is the result of a demerger in 2020 from Iluka Resources, Australia’s biggest mineral sands company.
The company earns mining royalties from its flagship Mining Area C (MAC), the site of BHP’s North Flank and new South Flank project.
Listed royalty companies such as Deterra provide investors with exposure to the value from a natural resources business, but without much of the exposure to some of the operating risks of their mining.
The demerger was fortuitously timed considering the recent rally in ore prices and the inauguration of BHP’s South Flank at the company’s flagship Mining Area C (MAC).
The latter will cause a sizeable jump in royalty flows to Deterra.
Once MAC ramps up to its expected output by FY23, DRR at the current share price will have a forecasted PE of 12.5x and a dividend yield of 5.3%.
Domino’s Pizza (ASX:DMP)
Domino’s has thrived in the Covid-19 environment where online sales of food and a crush in disposable income helped to drive record revenue growth.
DMP’s approach to targeting their niche market and the use of technology is unrivalled by any other fast-food company in the world.
With automation of delivery such as drone deliveries around the corner, we expect Domino’s to have good upside coming into the next few years.
Even though Domino’s yield is low at around 1.14%, their payout ratio is 95.83% – meaning they pay almost all their profits out.
Their low yield can be attributed to the strong growth in their share price thanks to the strong growth in their revenue.
Ansell specialises in manufacturing and distributing personal protective equipment (PPE).
If the world is to learn from its COVID mistakes, PPE will become a product that will be in high demand for the foreseeable future.
In addition, a company such as Ansell is a strong pandemic hedge as it is virtually guaranteed COVID will not be the last one that we have.
Having stocks in your portfolio that can be uncorrelated during times of turmoil is a good way to increase return whilst reducing volatility.
Ansell currently has a yield of about 1.8% with a payout ratio of 31%.
Ansell has been growing their dividend year on year and did not cut their dividend like many of the high yield stocks during the COVID crash.
In fact, the dividend grew.
Even though the yield is not that high, Ansell is one of those reliant stocks that will give you both a good yield in the future thanks to growing revenues as well as capital gains.
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This is general advice only. MF & Co Asset Management has not considered your personal financial needs, objectives or current situation. This information is not an offer, solicitation, or a recommendation for any financial product unless expressly stated. You should seek professional investment advice before making any investment decision.
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Henry is a co-founder of MF & Co. Asset Management with over 15 years of experience as a trader, investor and asset manager. His focus is on quantitative and qualitative stock analytics and advanced options strategies combined with statistical analysis to trade and invest for clients. You can catch him on ausbiz as a regular contributor talking on macroeconomic and trading themes.