Dividend shares on the ASX could be great ways to reliably boost your income.
There are some well-known shares out there that have a high yield. For example, Telstra Corporation Ltd (ASX: TLS) has a grossed-up dividend yield of 5.9% and Commonwealth Bank of Australia (ASX: CBA) has a grossed-up dividend yield of 7.3%.
It has been a couple of years since each of those blue chips increased their dividend. I’m not sure it’s a great idea to look at businesses that are stuck or going backwards. It’s best to focus on businesses that have a history of growth, a setup for growth and an expectation for future growth.
Here are two top ideas:
Rural Funds Group (ASX: RFF)
Rural Funds is a farmland real estate investment trust (REIT). It has a FY20 distribution yield of 5.8%, so it definitely counts as a dividend share. It has increased its distribution by at least 4% each year and aims to increase its distribution by 4% a year for the foreseeable future. It certainly ticks the income box.
Is it reliable? Well, 100% of its farms are leased out to high-quality tenants such as Select Harvests Limited (ASX: SHV), Treasury Wine Estates Ltd (ASX: TWE) and Singaporean food giant Olam. It has a weighted average lease expiry (WALE) of more than a decade.
The rental income is contracted to grow either by a fixed 2.5% per annum or it’s linked to CPI inflation, plus market reviews. There’s a lot to like about Rural Funds’ income attributes.
InvoCare Limited (ASX: IVC)
InvoCare is the largest funeral operator in Australia and New Zealand. It has a trailing grossed-up dividend yield of 4%, it has a projected 2020 grossed-up dividend yield of 4.7%.
Is it reliable? As the saying goes, there are only two things certain in life: death and taxes. InvoCare has a market share of around a third, so it almost has a guaranteed amount of activity and earnings each year.
The last two years have been tough for InvoCare but (sadly) conditions are returning to the long-term average. The company is also finishing its renovations at many of its locations, which means the funeral can be more of a celebration rather than a sombre affair. And InvoCare can charge more for it.
Death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050. This is a long tailwind.
For reliable income I think Rural Funds would be a better choice because of how consistent its distributions will be. However, InvoCare could be the better long-term performer for capital growth with the underlying tailwind and stronger margins coming through.
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Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED, Telstra Limited, and Treasury Wine Estates Limited. The Motley Fool Australia has recommended InvoCare 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.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020