With interest rates at record lows and the long-term outlook for them remaining weak, I continue to believe the Australian share market is the best place to generate a passive income.
But which shares should you buy for dividends right now?
Whilst many dividends are being deferred or cancelled, I believe the two companies listed below are well-placed to continue paying them during the coronavirus pandemic. Not only that. I believe they could grow their dividends materially over the next decade.
Here's why I like them:
Jumbo Interactive Ltd (ASX: JIN)
Jumbo is a leading online lottery ticket seller behind the OzLotteries website. Its shares have fallen heavily over the last few months due to the pandemic and concerns over its declining earnings. The latter has been caused by the narrowing of its margins due to its increased investment in growth opportunities.
With management expecting its margins to return to normal levels again in FY 2021, I think the selling of its shares has been an overreaction. Especially given how these investments are expected to play a key role in the company achieving its target of $1 billion of ticket sales through its Jumbo platform by the end of FY 2022. This will be over triple the $321 million ticket sales it achieved in FY 2019.
Another positive is that its shares have fallen to a level that make them attractive for income investors. I estimate that its shares offer a FY 2021 fully franked 3.7% dividend yield.
Kogan.com Ltd (ASX: KGN)
Another option for income investors to consider buying is Kogan. In February this ecommerce company posted a 16.4% increase in first half gross sales and a 20.8% lift in net profit after tax to $8.9 million. This allowed the Kogan board to declare a fully franked interim dividend of 7.5 cents per share, up 22.9% on FY 2019's interim dividend.
Given how the company is currently experiencing very strong demand from consumers because of store closures across the country, I believe it is well-positioned to grow its full year earnings and dividend at an even stronger rate. As a result, I estimate that its shares offer a forward fully franked 3% yield at present. Whilst this is a modest yield, I believe Kogan's dividend could grow materially in the future thanks to the shift to online shopping and its growing customer base.
