How to choose ASX dividend shares during the coronavirus crisis

The Australian share market is traditionally one of the most dividend-friendly markets in the world.

There are countless companies of different sizes and from different sectors returning funds to shareholders every six months.

However, all this has changed in 2020 following the outbreak of the coronavirus globally.

What has happened?

One of the words that keeps being mentioned by companies during the coronavirus crisis is “uncertainty”.

This is in relation to the duration and severity of the outbreak and ultimately its impact on both the global economy and the performance of their respective businesses.

This uncertainty has led to a large number of companies taking measures to preserve cash and protect their balance sheets.

Unfortunately for income investors, this has led to more and more companies either deferring the payment of their dividends or cancelling them outright. This is certainly a big blow to those that were relying on them for income in this low interest rate environment.

How do you choose dividend shares during the coronavirus crisis?

The majority of companies on the ASX are being impacted by the coronavirus, but there are some that have continued largely unaffected.

The likes of Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) are two such companies. In fact, they are benefiting thanks to the panic buying sweeping through their supermarkets. This could put them in a position to grow their dividends. Of the two, I think Coles is the better option for income investors. Its shares offer an estimated forward fully franked 4% dividend yield.

In addition to them, telco giant Telstra Corporation Ltd (ASX: TLS) was able to reiterate its guidance for FY 2020 in March. Whilst this will be the low end due to the certain initiatives it is undertaking to support the economy, I believe it will be sufficient to maintain its 16 cents per share dividend. Based on its last close price, this equates to a fully franked 5.15% yield.

Another company that looks to be benefiting from the crisis is Ltd (ASX: KGN). Due to the closure of many retailers across the country, this ecommerce company appears to be experiencing an increase in demand. And while it is not traditionally known as a dividend share, the pullback in its share price means it is well worth considering. Based on its last close, Kogan’s shares offer an estimated forward fully franked 3% yield.

Another share to consider is Wesfarmers Ltd (ASX: WES). Whilst the conglomerate is likely to be impacted by softer consumer demand across some of its businesses, I believe its diversity and very strong balance sheet will allow it to continue paying a dividend. I estimate that its shares offer a fully franked 3.9% yield.

Speaking of diversity, you can’t get much more diverse than the Vanguard Australian Shares High Yield ETF (ASX: VHY). This exchange traded fund provides investors with exposure to a large number of dividend paying shares. This includes the big four banks, Telstra, and Wesfarmers. Whilst it is difficult to predict the yield its shares will provide due to all the deferrals and cancellations, I am confident it will be well-above average. I would estimate a yield of 5.4% over the next 12 months.

And then finally, there is this top dividend share which is another that appears to have been benefitting from the coronavirus crisis. This is due to its direct exposure to the working from home initiative. I believe this leaves it well-placed to grow its fully franked dividend in FY 2020 and beyond.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended ltd and Telstra Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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