Dividends are an important consideration for any investment portfolio, particularly in Australia where our tax system gives some nice incentives to own dividend-paying shares. In the GFC, those regular dividend cheques were often the sole comfort for investors watching their portfolios shrink.
For these reasons, I believe dividends should be an important consideration with building a portfolio.
Here are three ASX shares I would buy to build up a diversified dividend-paying portfolio.
Australia and New Zealand Banking Group (ASX: ANZ)
ANZ has been in recovery mode for the last few months after a rough 2018 in which the banking Royal Commission saw stories of rife misconduct in the Australian financial services industry.
As the third-largest bank in Australia, ANZ enjoys several competitive advantages, including a brand-recognition, low-cost operations and the ability to undercut competitors on price. Additionally, ANZ is the only bank to currently have a share buy-back program in place (where the company buys back its own shares from the market). I think this a great way to return value to shareholders, particularly as the share price was pushed down for much of 2018.
ANZ is paying a 6.1% dividend yield (before franking), which, in my view, makes it a great foundation for a dividend portfolio.
APN Industria REIT (ASX: ADI)
APN Industria REIT is in the business of commercial real estate. With a portfolio of 24 properties, (mainly industrial and business parks) across Sydney, Melbourne, Brisbane and Adelaide, APN Industria is a relatively cheap way of gaining exposure to commercial property. Industria's average lease is almost 7 years, with 3% annual rental increases written in, which gives it a wonderful inflation-hedge in this era of record-low interest rates.
Although REITs don't come with franking credits, they do not have to pay company tax and by law must pass on 90% of their earnings to shareholders as distributions. For these reasons, APN Industria can provide some important diversification within a dividend portfolio and pays a healthy yield of 5.89%.
Sydney Airport Holdings (ASX: SYD)
Sydney Airport Holdings operates Sydney's Kingsford-Smith Airport, the largest airport in Australia. Infrastructure assets like Sydney Airport are highly defensive investments as demand for their services is very consistent and stable. For this reason, the company's dividend yield is often compared to bond-yields rather than other dividend payers.
Although I don't believe Sydney Airport can offer investors the kind of return it has in the past (over 60% in the past 5 years alone), I think infrastructure assets are an important defensive component of any dividend-focused portfolio, and with a yield of 5.19% on current prices, Sydney Airport is still a great candidate.
