Dividend shares could be the best way to balance the needs of income for today with long-term capital growth for the future.
However, there are some dividend shares which now seem too expensive to buy today like Transurban Group (ASX: TCL).
Here are three ASX dividend shares to buy for 2020 and beyond:
Duxton Water Ltd (ASX: D2O)
Duxton Water is the only business that on the ASX that purely owns water entitlements that leases them out to agricultural businesses.
The company released its latest monthly net asset value (NAV) for January 2020 and said that the value uplift of permanent water entitlements that the water market has seen reflects long-term drivers rather than the drought currently being experienced. According to Duxton Water, over the past decade irrigators have enhanced the marginal return per megalitre through both efficient use of water and conversion to higher quality commodities/crops.
Duxton Water also said that the government has taken steps to return water to the environment with the purchase of around 20% to 22% of entitlements that were previously available to the consumption pool.
Combined, these impacts have seen stronger demand for a reduced water supply leading to higher water prices.
It hasn’t helped that the period from 2017 to 2019 had the lowest three-year rainfall on record with falling dam levels.
Duxton Water is trying to enter into contracts with its water so that it receives regular, expected payments (and farmers know they’re signed up for with water leases as well). It’s aiming to have 70% to 80% of its water portfolio under lease – Duxton Water’s current weighted average lease expiry is 3.2 years.
The company is now guiding a dividend increase for September 2020 of 2.9 cents per share and March 2021 of 3 cents per share.
That means the forward grossed-up dividend yield is 5.6%. It’s trading at a large discount to its post-tax NAV and an even larger discount to its pre-tax NAV.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts could be the best dividend share on the ASX. It doesn’t have the biggest yield and it doesn’t have the strongest growth. But, what it has is excellent dividend growth consistency and reliability.
It has paid a dividend every single year in its existence since 1903 and it has increased its dividend every year since 2000.
One of Soul Patts’ main aims is to increase its dividend, those dividends are fully funded by the net regular cashflow that Soul Patts receives as investment income, less its expenses.
Soul Patts’ investment income keeps growing as its investments grow such as Brickworks Limited (ASX: BKW), Clover Corporation Limited (ASX: CLV) and Australian Pharmaceutical Industries Ltd (ASX: API). Soul Patts also retains some of its cashflow each year to re-invest in more opportunities like the recent investments in agriculture and luxury retirement living.
If TPG Telecom Ltd (ASX: TPM) wins its appeal to merge with Vodafone Australia then Soul Patts could be a quick winner this month.
Soul Patts currently has a forward grossed-up dividend yield of 4.1%.
Both of these shares offer attractive starting dividend yields with expected dividend growth over the longer-term. At the current prices I’d probably go for Soul Patts because of its long-term performance, diversification and reliability.
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Returns As of 6th October 2020
Tristan Harrison owns shares of DUXTON FPO and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia owns shares of and has recommended Transurban Group and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Brickworks and 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.