Many investors are searching for yield in today’s low interest rate environment.
Some people may want to avoid the big ASX banks of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) because of all of the fines, remediation and so on.
But I think it would be a mistake to go for Telstra Corporation Ltd (ASX: TLS) for dividends, even if it has a past reputation for large income.
These days the large telco is facing big headwinds because of the NBN. In FY19 Telstra’s underlying earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 11.2% to $7.8 billion, underlying net profit fell 39.6% to $2.1 billion. Due to the profit fall, the dividend was cut by 27%. Dividends can’t grow, or even be maintained, if earnings are falling.
I think these 2 dividend shares are much better ideas for dividends:
Rural Funds Group (ASX: RFF)
Rural Funds is a farmland real estate investment trust (REIT). It aims to grow its distribution to shareholders by 4% each year.
In FY19 it grew its net cash rental profit per unit (AFFO) by 4.7% and in FY20 it expects to grow AFFO by 1% despite selling its high-yielding poultry farms for around balance sheet value.
Rental income continues to grow with increases linked to a fixed 2.5% increase or CPI inflation.
It currently has a distribution yield of around 6%.
Brickworks Limited (ASX: BKW)
Brickworks is a building products business with significant investments in a industrial property trust and with investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). Rental growth from the property trust and dividends from Soul Patts alone will help Brickworks grow earnings and dividends for shareholders.
In FY19 underlying EBITDA increased by 12% and underlying profit rose by 4% with the dividend growing by 6%. The Australian building products business is likely to see a turnaround in the medium-term and the US looks very promising.
It hasn’t decreased its dividend for decades and currently has a grossed-up dividend yield of 4.2%.
I think both Brickworks and Rural Funds can offer much more reliable earnings and consistent dividends, with more growth. At the current prices I’d probably go for Brickworks with its long-term performance and cheaply-priced building products businesses.
The post Forget about Telstra for dividends, I think these 2 income shares are much better appeared first on Motley Fool Australia.
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Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED, Telstra Limited, and Washington H. Soul Pattinson and Company 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. 2019