Do these ASX dividend shares really have 20%+ yields?

Are these yields too good to be true?

| More on:
A man throws his arms up in happy celebration as a shower of money rains down on him.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Australian share market is home to a good number of dividend shares with generous yields.

However, as dividend yields are usually reported on a trailing basis, investors need to be careful that they don't buy shares on the expectation that the last dividend is indicative of what will be paid over the next 12 months.

For example, the three ASX shares listed below show up on many websites as offering 20%+ yields. Is this really the case?

Fortescue Metals Group Limited (ASX: FMG)

On Google, Fortescue shows up with a fully franked 25% dividend yield. While this is accurate based on its FY 2021 dividends, analysts are tipping the iron ore giant to pay a significantly reduced dividend in FY 2022. This is due to a sizeable pullback in the iron ore price and the weaker outlook for the low grade iron ore that Fortescue mines. Goldman Sachs is expecting fully franked dividends per share of US$1.02 in FY 2022 and 61 US cents in FY 2023. This will mean yields of 9.7% and 5.8%, respectively, over the next two financial years. Great yields, but nowhere near the 25% some investors may have been hoping for.

iShares S&P 500 AUD Hedged ETF (ASX: IHVV)

This index-tracking exchange traded fund apparently offers investors a 21% yield at current prices. However, this is even more misleading than the previous example. As my colleague explains in detail here, this ETF periodically rebalances its holdings. This is achieved by selling the shares that have increased outside their index allocations and by buying the shares that go under. This left the iShares S&P 500 AUD Hedged ETF with surplus cash, which is then returned to existing unit holders in the form of dividend distributions. The actual dividend yield provided by this ETF is closer to 1.3%.

Regal Investment Fund (ASX: RF1)

Finally, Regal Investment Fund's shares show up as offering a 25% yield at current prices. However, it is worth noting that this dividend yield is the result of a profit surge in FY 2021 after the fund delivered a whopping return of 62.75% net of fees. This allowed the company to make a significant increase to its full year dividend. However, it is impossible to know if Regal Investment Fund will be able to come close to replicating its success again in FY 2022. As a result, if its dividend were to drop back down to the FY 2020 level of ~23 cents per share, it would mean a yield of 6.8% rather than a 25% yield.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 3 April 2025

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Dividend Investing

Piggy bank at the end of a winding road.
Dividend Investing

Why this $44 billion ASX 200 dividend stock is pushing higher today

The ASX 200 dividend stock trades on a yield of 4.6%.

Read more »

Young girl drinking milk showing off muscles.
Dividend Investing

Up 41% in 2025, how this ASX 200 dividend stock is primed for 'continuing growth'

A leading expert expects ongoing growth from this high-flying ASX 200 dividend stock.

Read more »

A couple working on a laptop laugh as they discuss their ASX share portfolio.
Dividend Investing

Buy these ASX dividend shares for 3.5% to 8% yields

Income investors might want to check out these buy-rated shares.

Read more »

Family shopping for groceries
Dividend Investing

Should I buy Woolworths shares for the 4% dividend yield?

Woolworths shares even delivered two fully franked dividends during the pandemic-addled year of 2020.

Read more »

A happy older couple relax in a hammock together as they think about enjoying life with a passive income stream.
ETFs

Here's why it's a great day to own Vanguard ASX ETFs

Show us the money!

Read more »

Man holding out Australian dollar notes, symbolising dividends.
Dividend Investing

Forget savings accounts and buy these ASX dividend shares

Analysts think these shares could be top picks for investors looking to beat falling rates.

Read more »

Happy man holding Australian dollar notes, representing dividends.
Dividend Investing

How to build a $500 per month income stream with ASX dividend shares

Let's see how you could make it possible on the share market.

Read more »

Middle age caucasian man smiling confident drinking coffee at home.
Dividend Investing

Buy these ASX dividend stocks for big yields

Let's see why these shares are buys for income investors according to analysts.

Read more »