Many investors in the retirement phase or looking to invest their self managed superannuation funds will be after two things. Income and security.
After all with cash rates at 1.5% the share market offers an excellent option to boost your income way above 1.5%. However, it’s no use getting a 5-6% yield if the value of your capital falls by 10%-15% or more. Just ask Telstra Corporation Ltd (ASX: TLS) shareholders.
Investors should look to businesses with good track records of steadily growing their dividends thanks to defensive revenue streams and strong competitive positions. We’ve seen with Telstra how competition can hurt a business’s profitability and investor returns.
Below are four businesses with reliable revenue streams that also have strong competitive positions likely to allow them to increase dividends over time.
Sydney Airport Holdings Ltd (ASX: SYD) paid 25.5 cents per share in total dividends in its financial year 2016. In financial year 2018 it is forecasting dividends of 37.5 cents per stapled security, which shows the strong profit growth the airport is generating.
It also has the advantage of being a monopoly asset so it can charge relatively high aviation (i.e. landing) fees and non-aviation (parking, etc,) fees, with airlines and passengers having little choice but to pay. The risk of rising cash rates in the US is true, but the share price ($6.39) has fallen 10% over the past year to provide today’s investors a higher yield (5.9%) and margin of safety.
Transurban Group (ASX: TCL) is similar to Sydney Airport as an infrastructure business that operates monopoly assets in the form of toll roads. Transurban also has a strong competitive position, because as if it raises tolls on its roads drivers have little option but to pay. It is also a beneficiary of the steadily increasing number of vehicles on the road. It is forecasting 59 cents per share in dividends over financial year 2019. The risk of rising cash rates in the US is true, but the share price ($11.28) has fallen 15% over the past year to provide today’s investors a higher yield (5.2%) and margin of safety.
ASX Ltd (ASX: ASX) is the operator of Australia’s stock exchange and is also a virtual monopoly asset, despite some small competition from Chi-X. As such it also has reliable revenue, profit and dividend streams, with a recent sell-off in its shares providing an opportunity to take a position. It has a policy to pay out 90% of underlying profits as dividends and in FY 18 lifted its total dividend to a fully franked 216.3 cents per share. That’s a trailing yield of 3.65% based on today’s price of $59.23. A trailing yield of 4% would require a price of $54, which might be a better entry point.
We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.
That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Atlassian.
We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!
Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. The Motley Fool Australia owns shares of ASX 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 Scott Phillips.