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

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 income options I’d invest $5,000 into at today’s prices:

WAM Research Limited (ASX: WAX) – $3,000

This has been one of the best performing listed investment companies (LICs) on the ASX over the last five years. It’s led by Geoff Wilson and his investment team at Wilson Asset Management.

Time and again the WAM team have identified an undervalued share using the market-beating process that has led to WAM Research’s portfolio delivering an average gain of 18.8% per annum before fees over the past five years.

This performance has been achieved with a high level of cash, which offers protection for market crashes and is investment ammo for opportunities. It pays a growing dividend out of the strong performance, the dividend has grown every year since the GFC.

It currently has a projected grossed-up yield of 8.76%.

National Storage REIT (ASX: NSR) – $1,000

This is the largest self-storage provider in Australia and New Zealand and now has 130 centres and over 40,000 customers.

It has benefited significantly from the rising costs of Australian real estate prices. There’s only so much that smart storage solutions from IKEA can help a household before you need more storage space.

As long as National Storage is able to steadily increase its rental price per square metre and benefit from economies of scale due to its size then it could be a solid pick with its distribution yield of 5.65%.

Japara Healthcare Ltd (ASX: JHC) – $1,000

Japara is one of Australia’s largest aged care providers. Some market commentators believe it may benefit from further industry consolidation with recent changes to the aged care sector making it much harder for small and independent operators to make any money – they may want to sell to large players like Japara.

The company is on track to add more than 1,000 beds to its total over the next few years and this could lead to a sizeable increase of the profit with more residents and less construction costs.

It currently has a trailing partially franked dividend yield of 5.2%.

Foolish takeaway

Despite the premium to the NTA my clear dividend favourite is WAM Research because of its high yield, strong performance and good profit reserve. The other two are also good options, but I think there are more risks to them, which is why I allocated a smaller amount.

Another quality dividend share I’d be happy to increase my holding of is this top share which could increase its FY18 dividend by more than 25% next month.

Breaking news: ASX companies set to raise dividends!

It's been a nail-biter of a reporting season here in the first half of 2018.

But the real action, in my opinion, is what companies are doing with dividends.

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Motley Fool contributor Tristan Harrison owns shares of JAPARA DEF SET and WAM Research Limited. The Motley Fool Australia has recommended National Storage REIT. 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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