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2 top ASX 20 shares to buy for income and growth

Phil Harpur
best shares

I like the following 2 ASX 20 shares, because not only do they provide a strong dividend yield, they also have good long-term growth prospects. This gives you the best of both worlds with regards to share investing – income AND growth.

Transurban Group (ASX: TCL)

Transurban is one of the world’s largest toll-road operators and the largest operator of private toll-roads in Australia. In fact, it owns a virtual monopoly on the toll roads of Australia’s 2 largest cities, Sydney and Melbourne, and also has a number of toll roads in Brisbane. It also manages and develops toll-roads in North America.

Transurban is also a strong defensive share from the perspective that it is unlikely to be impacted by economic downturns, thus providing more stable dividends.

Due to the increasing number of vehicles using our toll roads, Transurban has been able to grow its revenue at a strong rate over the last decade. In its most recent financial results, earnings before interest, tax, depreciation and amortisation rose strongly from $1,670 million in FY18 to $2,021 million in FY19, providing a very strong 21%, year-on-year increase.

Transurban appears well set to see strong growth to continue over the next decade with a number of new toll roads scheduled to be completed within the next 5 years.

A significant driver of increasing use of toll roads is the growing congestion on our main roads, which seems to be getting progressively worse each year. Our major cities continue to expand at a rapid rate, and vehicle volumes will inevitably continue to go upwards.

Transurban has also cleverly linked future toll rises to inflation, giving it a lot of pricing power and providing strong investor certainty with regards to the company’s future earnings.

It also provides a good dividend yield of 3.9%.

Wesfarmers Ltd (ASX: WES)

Wesfarmers is a highly diversified business with operations in general retail segments including home improvement and outdoor living, and office supplies, as well as industrial segments such as chemicals and energy. Wesfarmers subsidiaries include household names such as Bunnings Warehouse, Kmart Australia and Officeworks, and online retailer division Catch.

Wesfarmers’ core strength is its diversification across a very broad spectrum of the Australian economy. This provides it with a buffer to any industry-specific challenges that could potentially negatively impact on any of its subsidiaries.

Throughout 2019, Wesfarmers has made a few acquisitions, including a lithium producer, Kidman Resources. This gives Wesfarmers exposure to the rapidly growing lithium market segment, an essential ingredient for the hi-tech sector in areas such as electric vehicles.

Wesfarmers’ size and scale gives it plenty of options in terms of the types and size of companies that it can acquire, as well as the capacity to better absorb any loss-making divisions.

It provides a good dividend yield of 3.7% that is fully franked. While its price-to-earnings ratio of 25.5 is a bit on the high side for an income share, I think it has excellent long-term prospects and is still a good share to buy and hold for the long-term.

The post 2 top ASX 20 shares to buy for income and growth appeared first on Motley Fool Australia.

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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Transurban Group. 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.

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