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3 star ASX income stocks for the 2020s

gold star

We’re only two months into the 2020s and things have already been pretty crazy. A coronavirus, bushfires and almost the start of a war. I think star ASX income stocks could be the best way play these volatile times.

Just focus on the growth of the dividend then you don’t need to worry if prices go up and down. Here are three star income stock ideas:

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) 

Soul Patts is the gold standard for dividends on the ASX. It has paid a dividend every year since it was created in 1903. It has grown its dividend every year since 2000.

The great thing about Soul Patts is that it funds its dividend entirely from the net cashflow it generates from investment income less expenses. In FY19 its dividend payout ratio of regular operating cashflows was just 82%.

Soul Patts continues to invest into new businesses such as agriculture and luxury retirement living.

If the merger between TPG Telecom Ltd (ASX: TPM) and Vodafone Australia is allowed, then Soul Patts could benefit as early as this month if the TPG share price rises.

It has a grossed-up dividend yield of 4%.

WAM Leaders Ltd (ASX: WLE) 

WAM Leaders has been a good-performing listed investment company (LIC) which focuses on shares within the ASX 200 (ASX: XJO).

It has increased its dividend each year since FY17, including the latest half-year dividend to 3.25 cents per share – an increase of 22.6%. That brings the annualised grossed-up dividend yield of 7.3% but it has also been building its profit reserve to fund for future dividend payments.

It continues to outperform the index, it’s definitely worth being invested for income-seekers for the attractive amount of dividends it pays every year.

Duxton Water Ltd (ASX: D2O) 

Duxton Water owns water entitlements and leases them out to agricultural businesses.

Over the past 12 months its return, the net asset value (NAV) plus dividend, was around 34% with a strong rise because of the drought in regional Australia. However, when the rain returns it’s likely that water values will fall again. Over the longer-term water demand is likely to rise from higher value crops such as almonds. 

The company is aiming to pay a steadily growing dividend for shareholders. It has grown its dividend each year since 2017 and the forward grossed-up dividend yield is 5.5%.

Foolish takeaway

All three of these dividend shares have a growth streak going on with a solid starting yield. I think Soul Patts would be my favoured pick, its long-term dividend and total return are too good to miss, although WAM Leaders has an attractive dividend yield.

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Returns As of 6th October 2020

Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended DUXTON FPO. 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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