The ASX 200 blue chips could be a good place to look for big dividend yields for your portfolio.
With Australian interest rates at record lows and predictions of further reductions by the RBA it is understandable that Australians are looking for alternative sources of income.
A bank account interest rate of around 3% just won't cut it these days. You could have $1 million cash sitting in the bank and be earning less than $30,000 a year.
Investors are attracted to ASX blue chips because of their tendency to pay out a lot of their earnings to shareholders every year, resulting in a high dividend yield.
These are some of the most popular ASX 200 blue chips for income:
Sydney Airport Holdings Pty Ltd (ASX: SYD) has a trailing yield of 5.8%.
Transurban Group (ASX: TCL) has a trailing yield of 4.8%.
Commonwealth Bank of Australia (ASX: CBA) has a trailing grossed-up dividend yield of 8.4%.
Westpac Banking Corp (ASX: WBC) has a trailing grossed-up dividend yield of 10.2%.
National Australia Bank Ltd (ASX: NAB) has a trailing grossed-up dividend yield of 11.3%.
Telstra Corporation Ltd (ASX: TLS) has a trailing grossed-up dividend yield of 10.7%.
Finally, Macquarie Group Ltd (ASX: MQG) has a trailing partially franked dividend yield of 4.5%.
I haven't mentioned resource businesses in this list because I don't think income investors should go for businesses where the earnings (and dividend) could be volatile.
There are some very big yields in the above list. Westpac, NAB and Telstra all offer trailing yields of above 10%. It could be possible to beat the long-term average returns of shares with just the income alone. But it could be too goo to be true.
Telstra has already proven dividends are not guaranteed. I prefer the idea of investing in shares with high yields because they're trading at a big discount or cheap price, not because their earnings are in trouble of dropping. Yield traps are dangerous for income investors.
Foolish takeaway
I'd much rather buy shares of Macquarie, Sydney Airport or Transurban than the big banks & Telstra because they have a much higher chance of maintaining and growing their earnings in the next few years. However, it's the smaller ASX businesses outside of the ASX20 which may have the most sustainable dividend growth because of their longer growth runways.
