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Why I’d buy these 3 dividend stocks

Credit: Simon Cunningham

It’s getting harder to find good sources of income these days with banks offering a very pitiful interest rate on money in the bank. The best rate you can find these days is between 2.8% to 3%, depending on the bank and its rules.

Shares are the only game in town to generate good income, which is why income investors would be well suited to look at some shares on the ASX.

However, just because something has a big yield doesn’t mean it’s necessarily good. Here are some options I think dividend investors should be interested in:

WAM Research Limited (ASX: WAX)

I think this is the best listed investment company (LIC) run by Wilson Asset Management. WAM Research purely focuses on the quality of the underlying businesses that it invests in, whereas some of the other WAM LICs try to find value arbitrages and market mispricing opportunities.

WAM Research has been very successful at finding undervalued growth companies. Over the past five years the portfolio’s performance was an average of 18.1% per annum before fees and expenses. It pays out a lot of this growth as a growing fully franked dividend.

It currently has an expected grossed-up dividend yield of 8.59% for FY18.

Japara Healthcare Ltd (ASX: JHC)

Japara is one of the largest aged care providers in Australia. I believe it’s a really good growth opportunity because the number of people requiring aged care is expected to skyrocket over the coming decades because of the ageing demographics. That’s why Japara is diligently acquiring smaller competitors and building or expanding its own facilities.

The aged care provider is a good dividend idea because it pays out most of its profit each year as a dividend. This isn’t usually a good thing, but it technically has a large balance of ‘loans’ from residents it doesn’t need to pay interest on, which could have reduced the profit if the loans were actually commercial loans. This policy makes a big dividend yield.

Japara is currently trading with a grossed-up dividend yield of 6.96%.

Rural Funds Group (ASX: RFF)

Rural Funds is the only real estate investment trust (REIT) to offer investors exposure to a purely-agricultural landlord. It owns a variety of farm types including cattle, poultry, vineyards, cotton, almonds and macadamias.

Australia is one of the few major countries to be a net exporter of food to other countries. Australia’s food export sector is expected to grow in the coming years due to the increasing global population and the desire of the Asian middle class for western-like diets.

Rural Funds has an aim of increasing its distribution by 4% each year, so far it has delivered on this goal.

Rural Funds is currently trading with a trailing distribution yield of 4.5%.

Foolish takeaway

Japara could be the best opportunity of the three due to its share price fall over the last couple of years. But, both WAM Research and Rural Funds could be excellent buy-and-hold income options for the next decade.

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Motley Fool contributor Tristan Harrison owns shares of JAPARA DEF SET, RURALFUNDS STAPLED, and WAM Research Limited. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. 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 Scott Phillips.

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