Transurban Group (ASX: TCL) shares, Sydney Airport Holdings Ltd (ASX: SYD) shares and APA Group (ASX: APA) shares are reliable dividend payers. And they have dividend yields which trump the 2.35% term deposit interest rate on offer from most major banks.
Buy are they a buy?
Transurban
Transurban is the owner of leading toll roads along Australia's east coast, from Melbourne to Brisbane, and in Virginia, USA. Its toll roads benefit from population growth, road improvements and annual increases in toll prices. Transurban shares are tipped to pay a dividend of 4%.
Sydney Airport
Sydney Airport owns Australia's busiest international gateway and earns revenue by charging a fee to airlines, for car parking and rents on retail shops. The company stands as a beneficiary of the long-term trends in international tourism. It is expected to pay a dividend of 4.4%.
APA Group
APA Group is Australia's leading energy infrastructure business, with over 15,000 kilometres of gas pipeline, and wind farms. Think of it as the owner of Australia's natural gas toll road. APA Group is forecast by analysts to pay 4.4% in dividends throughout the next year.
What makes them good dividend payers?
These three blue chip companies are great dividend payers because they have loads of recurring revenue and wide moats.
For example, if you are on a flight from China, you're not going to be happy if the only way to get to Sydney is via Melbourne and a 10-hour train ride. So even if the airport puts up the fee for landing by 5% the airline — and the passengers — are going to pay it.
In finance, a moat is a feature that makes it able to withstand competition or other external pressures and become a stronger business. Its name comes from the moat that surrounds a medieval castle.
For example, what are the chances that a new freeway is built next to the busiest Transurban toll roads in Melbourne, Sydney and Brisbane? Pretty low, I would say.
Are they a buy today?
At today's prices, I'm reluctant to buy shares in the three companies above because I don't know how increases in global interest rates will affect them over the next three years. Because of their defensive nature, Transurban, Sydney Airport and APA Group can take on truckloads of debt and still pay dividends — when the debt is cheap.
However, interest rates will eventually move higher — the USA's Federal Reserve is already jacking up its official rates — and force a higher repayment rate on these companies. Indeed, as good as these three businesses may be, in 2017, I'm avoiding companies with high amounts of debt.
Foolish Takeaway
Transurban, Sydney Airport and APA Group are some of the best dividend shares on the ASX, but they are not risk-free. Until I have a better handle on the impact of rising interest rates, I have each of them on my watchlist.
