In this era of low interest rates, high valuations and uncertain times I can understand why investors want to find very reliable dividend shares.
These three dividend shares could be some of the most reliable ones over the next few years:
APA Group (ASX: APA)
APA is one of the largest infrastructure businesses on the ASX, I also think it’s one of the best.
It owns a vast network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). It owns, or manages and operates, a portfolio of assets worth more than $21 billion and delivers half the nation’s natural gas usage.
The combination of its energy assets produce an attractive and consistent cashflow. It has grown its distribution every year for around 15 years, it’s guiding growth for this year, it continues to invest in new projects and it currently has a distribution yield of 4.25%.
Duxton Water Ltd (ASX: D2O)
Duxton Water is the only company on the ASX that purely owns water entitlements. The regional areas of eastern Australia have gone through a long period of drought over the last few years, with water values substantially higher.
Even if it does rain more over the next few years, it’s expected that there will be more high-value crops planted like almonds which will require more water and can pay for and therefore sustain a higher water price.
Duxton Water has increased its dividend payment every six months since it started paying a dividend of 2.3 cents per share in 2017. The company is now guiding a dividend increase for September 2020, with a projected payout of of 2.9 cents per share and 3 cents per share in March 2021. In percentage terms these are attractive increases.
It currently has a forward grossed-up dividend yield of 5.6%. It’s trading at a 16% discount to the value of its net assets if all of its water entitlements were to be disposed today and capital gains taxes were to be paid. It’s trading at a 26% discount to the net assets assuming no water entitlement disposals.
Viva Energy Reit Ltd (ASX: VVR)
This is a real estate investment trust (REIT) which owns a portfolio of over 460 service stations across Australia, with most of the locations in New South Wales, Victoria and Queensland.
Around 94% of its properties are Coles Express locations, leased to Viva Energy Group Ltd (ASX: VEA), so it has a high-quality tenant. 93.5% of the lease income is triple net, the rest is double net.
The vast majority of the rental income is locked in with 95.2% of lease income being a fixed 3% annual increase, 3.5% is linked to CPI inflation. There is additional growth from acquisitions and site improvements which should add further to distributable earnings.
The REIT’s current weighted average lease expiry (WALE) is 12.1 years, so its rental income is locked in for a long time. However, monitoring how electric vehicles change the landscape will be important over the next decade – if superchargers are added to those locations then the service stations will be future-proofed further.
It currently offers a distribution yield of 5.2%.
All three have defensive dividends with solid starting yields. Duxton Water is trading at the best value in relation to its current underlying asset value, though a wet year could cause a fall.
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Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO. 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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