Unfortunately for income investors, interest rates are currently at ultra-low levels and look unlikely to improve for some time to come.
The good news is that there are still plenty of ASX dividend shares that offer generous yields.
But which dividend shares should you buy? Here are two ASX dividend shares I would buy:
Rural Funds Group (ASX: RFF)
Rural Funds is a real estate investment trust that owns a diversified portfolio of high quality agricultural assets across Australia. This includes macadamia orchards, cattle assets, cotton assets, vineyards, and almond orchards. These assets are leased to some of the most experienced agricultural operators in the country such as Treasury Wine Estates Ltd (ASX: TWE) and Select Harvests Limited (ASX: SHV).
Thanks to its ultra long-term tenancy agreements and the inclusion of periodic rent increases, I believe Rural Funds is in a great position to continue growing its distribution at a solid rate over the next decade. Management has a target of ~4% distribution growth each year and looks set to deliver on this in FY 2021. It is forecasting an 11.28 cents per share distribution this financial year. Based on the latest Rural Funds share price, this equates to a 5.15% yield.
Telstra Corporation Ltd (ASX: TLS)
Another dividend share to consider buying is this telco giant. The Telstra share price has come under pressure this month following the release of its full year results. This is because its guidance for FY 2021 implies that there will be a dividend cut this year. While this is a distinct possibility due to its existing dividend policy, I would argue that its policy is out of touch with its current financials. This is because it is based on its accounting earnings, which is actually lower than its free cash flow.
A switch to a free cash flow based dividend policy would allow the company to maintain its current dividend if it delivers on its guidance. Analysts at Goldman Sachs believe this is likely to occur and have held firm with their estimate for a 16 cents per share dividend in FY 2021. Based on the current Telstra share price, this will mean a fully franked 5.25% dividend yield in 2021.
