3 dividend stocks I’m happy to own

The amount of money you can make from cash in the bank is appalling these days. If you’re retired and living off term deposits or building up cash for a house deposit you have drawn the short straw.

People are looking for more income from their capital. I think the share market is the best place to put your money for income, but it needs to be invested in the right places.

Australia and New Zealand Banking Group (ASX: ANZ) and Telstra Corporation Ltd (ASX: TLS) are both regarded as blue chips yet have shown their dividends aren’t safe with big reductions in recent times.

I think investors need to as careful about dividend stocks as they are about growth stocks.

Here are three of my favourite income stock ideas:

Rural Funds Group (ASX: RFF)

Rural Funds is a real estate investment trust (REIT) that invests in farmland. It’s the only one of its type so far on the ASX and I think it could be the best REIT to own over the long-term.

It has a number of appealing qualities. It has a diverse portfolio of farm types, it has strong rental indexation built into its contracts and water entitlements make up a big part of its asset value.

Rural Funds Group expects to increase its distribution by 4% per year over the long-term and is currently trading with a distribution yield of 4.33%.

WAM Capital Limited (ASX: WAM)

WAM Capital is the largest listed investment company (LIC) run by Wilson Asset Management. It has an envious record, the portfolio has generated returns of 17.1% per annum over the past five years.

The LIC turns a lot of that wonderful outperformance into a fully franked dividend for shareholders, making it a very attractive dividend stock.

It currently has a grossed-up dividend yield of 8.7%.

Arena REIT No 1 (ASX: ARF)

Arena is another REIT that has managed to do very well over the past few years. It focuses on childcare centres and the industry is a growing one, that’s why Arena has one of the highest weighted average lease expiry (WALE) averages in the industry.

The business has a very good chance of generating strong returns thanks to a good rental increase rate and more property acquisitions.

Arena is currently trading with a trailing distribution yield of 5.6%.

Foolish takeaway

I believe that all three shares are very good income options, which is why I own shares of all three. If I had to say which one I’d buy today, Arena would probably be my choice. However, I think WAM Capital and Rural Funds may end up delivering the bigger returns over a five-year or ten-year timeframe.

Another good dividend idea could be this top income stock.

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Motley Fool contributor Tristan Harrison owns shares of ARENA REIT STAPLED, RURALFUNDS STAPLED, and WAM Capital Limited. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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