I think finding attractive sources of income is getting quite hard these days.
Many of the large ASX blue chips face pressure on their earnings, which could lead to unreliable dividends in the short-term or medium-term. Telstra Corporation Ltd (ASX: TLS) and National Australia Bank Ltd (ASX: NAB) are two examples of recent dividend cuts, with Sydney Airport Holdings Pty Ltd (ASX: SYD) facing falling passenger numbers.
Many real estate investment trusts (REITs) have gone up significantly in value, which pushes the starting distribution yield, so many of the popular names also may not be the best ideas.
So, we may need to look to different names for dividends. They should be businesses that will almost certainly have higher earnings in five years and ten years compared to today, whilst also rewarding shareholders with dividends.
Here are two ideas to think about:
Brickworks Limited (ASX: BKW)
The construction business has seen its share price drop over the past six months, boosting the grossed-up dividend yield of 4.9%.
The Australian construction sector may be going through a bit of a shaky patch, but Brickworks can point to its dividend record of not cutting since 1976 to deliver consistent and growing returns to shareholders. And the construction cycle will eventually pick up again.
It also has three other segments to diversify and grow its earnings – its US brick acquisition called Glen Gery, its stake in the industrial property portfolio and the shares of other businesses that it owns.
InvoCare Limited (ASX: IVC)
InvoCare has strongly recovered since worries about the number of deaths in Australia in 2018. It is also getting closer to finishing its renovation strategy which will hopefully improve its revenue and profit per funeral.
It has a trailing grossed-up dividend yield of 3.5%. I'm attracted to the long-term growth idea of InvoCare because 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. If it can maintain or increase its profit margins as time goes on then this is a slow & powerful tailwind.
Foolish takeaway
At the current share prices I think both of these businesses look attractive with how low interest rates are. If I had to pick one it would be Brickworks because of the earnings diversification and the international growth potential.
