With the cash rate at a record low of 0.25% and unlikely to increase any time soon, the interest rates offered with term deposits and savings accounts look set to stay lower for longer.
In light of this, I believe income investors ought to consider investing in some of the high quality dividend shares on the ASX in order to generate a sufficient income.
Three that I would buy are listed below:
Fortescue Metals Group Limited (ASX: FMG)
If you don't mind investing in the resources sector, then Fortescue could be a good option. Iron ore prices have been very resilient during the pandemic, putting Fortescue in a position to deliver another bumper profit in FY 2020. And given the strength of its balance sheet, I suspect the majority of its free cash flow will find its way back to shareholders. Estimating what dividend the iron ore producer will pay is difficult, but most analysts agree that it will be somewhere in the region of a 6% to 7% yield in FY 2021. Not only is this a very attractive yield, but its shares could be a good way of diversifying your portfolio across sectors.
Telstra Corporation Ltd (ASX: TLS)
Another dividend share I would buy is Telstra. Thanks to its ongoing operating cost reductions, improving industry conditions, the arrival of 5G, and the near completion of the NBN rollout, I think Telstra is a great option for income investors right now. In addition to this, it recently reaffirmed its guidance. And while it might decide to be prudent because of the pandemic, I believe its guidance leaves it well-placed to maintain its 16 cents per share dividend in FY 2020. This equates to a fully franked 5.3% dividend yield.
Vanguard Australian Shares Index ETF (ASX: VAS)
A final option for income investors to consider buying is the Vanguard Australian Shares Index ETF. Rather than invest in individual shares, this exchange traded fund gives investors the option to invest in the 300 shares that are listed on the S&P/ASX 300 index through a single investment. This includes the shares above, the big four banks, and dividend favourites such as Sydney Airport Holdings Pty Ltd (ASX: SYD) and Transurban Group (ASX: TCL). While its current yield is likely to be impacted by dividend deferrals and cancellations that have occurred recently, I expect things to return to normal again in FY 2021. At which point I estimate that its units will provide an attractive yield of over 4%.
