At today's prices, Sydney Airport Holdings Ltd (ASX: SYD) shares, Telstra Corporation Ltd (ASX: TLS) shares and APA Group (ASX: APA) shares offer large dividends to shareholders.
2 obvious reasons to hold dividend paying shares
Let's get one thing straight, dividends from shares are not guaranteed. What they are is reliable and consistent. But they are not the only reasons to hold dividend paying shares.
My two favourite reasons for holding dividend-paying shares are:
- They can be tax-effective. Some – not all – Australian companies pay something called 'franking credits' with their dividends, which can boost an investor's after-tax income.
- Long-term capital gains. Over the long-term, shares have proven to be the best-performing investment of all. Yep, even better than property.
3 ASX dividend share ideas
Here are three ASX dividend share ideas I have on my watchlist…
Sydney Airport Holdings
This company owns (you guessed it) Sydney Airport, Australia's busiest domestic and international gateway. As an infrastructure owner, Sydney Airport Holdings can distribute a reliable stream of dividends to shareholders. Given the consistency of its cash flows, it can also take on a lot of debt comfortably.
In addition to dividends, the company could also stand at the beginning of a long runway (get it?) of international tourism growth. There are risks, of course. But the company's unfranked 4.8% dividend looks tempting.
Telstra
Telstra needs no introduction. However, investors appear to be uncertain as to how Australia's largest telecommunications provider will fare once the substantial part of the NBN's rollout has taken place. As an aside, Telstra has penned a deal which will see it get paid billions of dollars by the government's NBN Co for control of its copper network.
In my opinion, for a number of years now, Telstra's core business has been in mobiles, where it operates our country's leading network, not fixed broadband. Therefore, together with its other innovation and investments, Telstra's recent share price fall could be overdone. It offers a 6.7% fully franked dividend.
APA Group
APA Group is Australia's largest operator and owner of gas pipelines. It also owns solar panel and wind farms, and distribution and storage facilities. Like Sydney Airport, it is APA's 'sunk' costs which make it a great dividend payer. Meaning, it has already paid so much money to put these pipes in the ground and form supply partnerships to establish itself. For a competitor to come along and put new pipes in the ground would be very difficult and costly.
Without substantial competition, APA Group can generate healthy profit margins on its deals. It is forecast to pay a dividend of 4.8% unfranked.
Foolish Takeaway
If you are seeking income in retirement, want a six-monthly pay cheque that is tax-effective or simply want to build your wealth over time, it pays (pun intended) to invest in dividend shares. If I were to choose one of these three company's shares to buy today, it would be Sydney Airport Holdings.
