When it comes to income investing, there are dividends and there are dividends. With the favourable tax treatment that dividends and franking credits provide, ASX companies are encouraged to pay them out as soon as possible, which inevitably leads to some companies not being able to sustain a good yield – rendering them pretty much useless for an income investor.
Other ASX companies have solid business fundamentals that enable them to dole out an ever-rising river of cash to lucky investors. Here are three ASX companies that (in my opinion) fall under the latter description.
Woolworths Group Ltd (ASX: WOW)
Woolworths has impressed this year with its plans to spin-off its liquor and drinks businesses and its ability to hold market share in the face of fierce rivalry from Aldi, Costco and Coles Group Ltd (ASX: COL). The new range of ‘Ooshie’ Lion King toys hasn’t hurt either – anything that gets kids excited about going shopping is going to turn heads, after all. Woolworths is currently offering a grossed-up 3.73% yield on current prices, but I expect that if the Woolworths’ drinks businesses are listed as a separate company, it will provide a healthy earnings stream in its own right.
National Australia Bank Ltd (ASX: NAB)
NAB has been impressing the market as well of late, with the appointment of new CEO Ross McEwan turning sentiment around for this ‘Big Four’ bank. NAB shares are up nearly 17% for the year (not including dividends). Speaking of dividends, NAB cut its interim dividend in May from 99 cents per share to 83 cents, which (in my opinion) we can expect to be repeated in its final dividend later this year. Normally dividend cuts aren’t a good sign, but NAB’s payout ratio was looking a bit high and I think that the new yield gives a lot more wiggle room for the bank. NAB shares are still yielding 8.57% grossed-up so I think NAB would be a great addition to a dividend portfolio.
Woodside Petroleum Limited (ASX: WPL)
Like any resource stock, commodity prices are everything when it comes to dividends. Woodside is a quality oil company that can keep the dividends flowing when oil prices are down and can shower investors when oil prices are up. On its most recent payouts, Woodside is offering a trailing yield of 4.07% (fully franked) but at the current time Brent oil prices are around US $60 per barrel, which isn’t especially high by historical standards. If oil prices were to run higher over the next few years, you could expect a higher share price as well as a higher yield. For this reason, Woodside might be a good buy at today’s prices (and a 4% yield isn’t bad either).
All of these dividend-payers are quality companies that (in my opinion) will continue to deliver rivers of cash to shareholders for many years to come. On current prices, I would personally go for Woodside, but NAB isn’t looking too expensive either.
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Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia owns shares of National Australia Bank 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.