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How I’d invest $5,000 into dividend shares

The income you can get by leaving money in the bank is pretty bad these days. It’s crazy to think that with a million dollars in the bank the most you might be able to get is $30,000, with most accounts offering less of a return than that.

So, what should an income-seeking investor do?

I think Australian shares are the answer. Many experts agree that, on the income side of things, Australian investments are hard to match for the income they can produce.

If I were going to invest $5,000 into four dividend shares, these four of the ones I’d choose:

Future Generation Investment Company Ltd (ASX: FGX) – $1,500

This company is quite unique on the ASX, except for its globally-focused sibling. Future Generation Investment Company invests money into some of Australia’s top fund managers. The interesting part about this company is that the fund managers work pro bono, for free, and the company donates 1% of NTA per annum to charities.

There are no management fees or performance fees. That means that shareholders could get a very good deal if the NTA of Future Generation outperforms the index, whilst supporting a lot of worthy charities related to youth.

It aims to increase the dividend each year and currently has a grossed-up dividend yield of around 5%.

WAM Research Limited (ASX: WAX) – $1,000

WAM Research is a listed investment company (LIC) that purely focuses on the underlying quality of the businesses that it invests in. The Wilson Asset Management team are very good at researching it seems, with the portfolio growing by an average of 18.8% per annum over the past five years before fees.

The LIC has turned this impressive performance into a growing fully franked dividend for shareholders. Indeed, its dividend has grown every year since the GFC whilst maintain a solid level of cash.

It currently has a grossed-up dividend yield of 8.8%.

Rural Funds Group (ASX: RFF) – $1,500

Rural Funds is the ASX’s only pure agricultural real estate investment trust (REIT). Farms have the useful benefit of not deteriorating like a building does over time. Farms have been useful assets for many hundreds of years.

The REIT has a long-term goal of increasing the distribution by (at least) 4% each year. If it can achieve this aim over the next decade then it could be one of the best income shares on the ASX today.

It currently has a distribution yield of around 5%.

Duxton Water Ltd (ASX: D2O) – $1,000

Duxton is a company which just invests in water entitlements and then leases them out to agricultural businesses.

Water may not seem like an exciting idea, but it’s the only business on the ASX that offers exposure in this obvious way.

The value of the water could go up over time due to water scarcity and a growing demand for Australian-grown food as the global population rises as well as the Asian middle class’ food habits changing.

It currently has a partially franked dividend yield of 4%.

Foolish takeaway

Although an average grossed-up yield of around 6% with these four picks isn’t that big it offers good potential for income growth over the long-term. I also believe that these four shares are among some of the businesses most likely to provide dependable income in a recession.

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Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO, 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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