There's a lot of speculation that Telstra Corporation Ltd (ASX: TLS) may have to cut its dividend in FY 2021 due to the impact of the pandemic on its earnings.
While I'm optimistic that a shift to a free cash flow-based dividend policy would allow for it to be maintained, there is no certainty that it will do this.
In light of this, I understand why some income investors are staying clear of Telstra right now.
If you would prefer to invest in dividend shares that are likely to grow in FY 2021, then you might want to consider the two listed below. Here's why I like them:
Coles Group Ltd (ASX: COL)
The first ASX dividend share to consider buying is Coles. I think the supermarket giant is well-positioned for growth over the coming years thanks to its defensive qualities, expansion opportunities, and its long track record of same store sales growth. In respect to the latter, Coles has used its strong market position to deliver 50 consecutive quarters of same store sales growth.
And while it may struggle to outperform the third quarter panic buying of FY 2020 when it cycles it, I'm confident its future growth will still be very positive. Another positive is its focus on cost cutting and automation. This should support its margins and ultimately its earnings and dividend growth over the coming years. For now, based on the current Coles share price, I estimate that it offers investors a fully franked ~3.2% FY 2021 dividend.
Rural Funds Group (ASX: RFF)
Another ASX dividend share to buy is Rural Funds. I think the agriculture-focused property group is in a great position to continue growing its distribution at a solid rate over the next decade. This is thanks to its high quality portfolio of assets that are spread across several different industries. These include cattle, wine, and almond production.
A big positive in my eyes is Rural Funds' long term tenancy agreements. At the last count its weighted average lease expiry was ~11 years. And with rental increase built into these contracts, I feel its long term distribution growth looks very secure. This certainly looks to be the case for FY 2021, with management intending to grow its distribution by 4% to 11.28 cents per share. Based on the latest Rural Funds share price, this equates to a 5.2% yield.
