When it comes to finding the best dividend shares on the Australian share market, I believe there are a number of key traits to look for. These include a track record, defensive earnings, a generous dividend yield, and dividend growth potential. If the company pays a fully franked dividend, all the better.
While finding a single share that encompasses all these traits is hard to find, there are a number of shares which come close and one in particular which does.
They are as follows:
Track record.
Companies such as Ramsay Health Care Limited (ASX: RHC), InvoCare Limited (ASX: IVC), and Retail Food Group Limited (ASX: RFG) have grown their dividend each year for at least a decade. Consistency of this nature is certainly something that I value highly, just as long as the company doesn't put unnecessary stress on itself by doing so.
Defensive earnings.
I believe that companies with defensive earnings are more likely to be able to pay out a stable dividend regardless of the state of the economy or the share market. Prime examples, in my opinion, would be ASX Ltd (ASX: ASX), Sydney Airport Holdings Pty Ltd (ASX: SYD), and Transurban Group (ASX: TCL). These three companies operate near monopolies and should be able to generate sufficient earnings in hard times to reward their shareholders.
Generous yield.
While a track record and defensive earnings are great, it is made even better if a company's shares provide a market-beating dividend yield. At present the Australian share market provides an average dividend yield of 4.1%. A couple of great examples of quality shares which offer even greater yields are Dicker Data Ltd (ASX: DDR) and Event Hospitality and Entertainment Ltd (ASX: EVT).
Dividend growth potential.
Finally, I don't want a dividend to go backwards, I want there to be plenty of opportunity for it to grow over the next few years. This could be due to its strong growth prospects or even a low payout ratio that could be increased gradually. I believe Altium Limited (ASX: ALU) is a prime example of a company which could double its dividend over the next few years due to its current growth profile. Whereas Collins Foods Ltd (ASX: CKF) is an example of a company growing steadily and paying out only a small portion of its earnings as dividends.
Foolish takeaway
Based on these four traits I would argue that Sydney Airport is one of the best dividend shares on the local share market. It has a strong track record of dividend increases, defensive earnings, a 4.4% yield, and solid growth potential thanks to the tourism boom Australia is experiencing.
