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3 ASX shares to build a diversified dividend portfolio

Tristan Harrison
Dividends

Dividend shares are in high demand these days with how hard it is to generate income from investments.

But I think we need to look for more than just a good dividend yield. We’ve seen dividend cuts from ‘blue chips’ like Telstra Corporation Ltd (ASX: TLS), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB) recently. It’s important to find businesses that can pay reliable dividends.

Here are three ASX dividend share ideas to diversify a portfolio:

Brickworks Limited (ASX: BKW) 

Brickworks could be one of the most reliable dividend shares on the ASX. The ordinary Brickworks dividend has been maintained or increased every year since 1976 – that’s an excellent record.

Construction is big business in Australia with growing capital cities and rising populations. There has been a lull over the past year or so because of the property downturn in Australia. However, confidence is returning to the construction industry and the Brickworks order book is seeing more activity.

Brickworks has a 50% stake in an industrial property as well as a share investment which provide very reliable distributions and dividends to Brickworks and they are both growing their capital values over the long-term for Brickworks too.

It currently has a grossed-up dividend yield of 4.4%.

Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is listed investment company (LIC). One of its main aims is to grow dividends for investors. It has grown its dividend each year since it started paying one in 2015.

It’s actually very diversified because it invests in a number of ASX-focused funds which each have their own portfolios, with more of a focus on smaller shares rather than blue chips. But, those fund managers work for free – they charge no management fees or performance fees – so that Future Generation can donate 1% of its net assets each year to youth related charities.

Future Generation is then able to use some of the net returns to pay a growing dividend to shareholders.

It currently has a grossed-up dividend yield of 5.8%.

Naos Emerging Opportunities Company Ltd (ASX: NCC) 

This is a LIC run by Naos Asset Management which focuses on the smallest shares on the ASX, ones with market capitalisations under $250 million. I’m happy to leave the investing in shares this small to investors who look at small caps all day long.

Naos only invests in businesses it has high conviction in, which is why it only has around 10 names in its portfolio. The Naos investment team plan to stay invested in these businesses for the long-term. However, a concentrated portfolio of small caps will mean there’s some sizeable volatility in some years. 

This LIC increased its dividend every year between FY13 (when it started paying a dividend) to FY18 and then maintained the dividend in FY19.

It currently has a grossed-up dividend yield of 9.8%.

Foolish takeaway

Each of these shares offers something different. The Naos LIC clearly has the biggest yield, but Brickworks may be the best long-term option because of its long-term dividend reliability and its diversified asset base.

The post 3 ASX shares to build a diversified dividend portfolio appeared first on Motley Fool Australia.

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Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. The Motley Fool Australia has recommended Brickworks. 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