The coronavirus is causing enormous economic disruption and even worse human impacts.
No dividend is totally guaranteed. It relies on profit being generated. Some businesses have defensive operating models, strong balance sheets and good profit reserves which will allow them to continue to pay attractive dividends during this period.
It’s dangerous to look at just the dividend. The price of that income share needs to make sense on valuation grounds and it needs to have a solid long-term outlook.
Here are two shares for rock solid income at good prices:
APA Group (ASX: APA)
How safe is APA’s distribution? Let’s look at the past history. It has grown its distribution every year for around 15 years, which includes growth through the GFC. That’s a great record.
The infrastructure giant has a forward distribution yield of almost 5% assuming it pays the projected annual distribution of 50 cents per share.
What is APA? APA Group 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.
Gas will be important with more people staying at home with more home cooking, and it’s coming up to the colder months for the southern states.
APA’s distribution is funded by its cashflow. That cashflow keeps growing as it invests in new energy projects which it continues to do.
Brickworks Limited (ASX: BKW)
How safe is Brickworks’ dividend? It has grown or maintained its dividend every year since 1976. It has provided income stability through a number of market crashes and downturns. A fantastic record.
The diversified property business has a current grossed-up dividend yield of 6.5% after recently increasing its interim dividend by 5% in the half-year result.
Brickworks has a number of divisions. It has a long-held ‘investments’ segment which provides reliable earnings and dividends to Brickworks. It has a 50% stake of an industrial property trust along with Goodman Group (ASX: GMG). Over the long-term the property trust is growing net rental income and value for Brickworks.
These two asset segments alone back up the entire market capitalisation of Brickworks and generate enough cashflow to fund the current Brickworks dividend.
The Brickworks building products division is obviously going to see a significant decline in earnings over this period. However, it’s well placed to ride this out and it will be in a good position to service the construction industry in Australia and the US when life gets back to normal. Better than most other building products businesses.
Brickworks’ share price has fallen 35% since the declines started, so it’s looking cheap now.
Both of these shares have great dividend records. At the current prices I’d definitely go for Brickworks because of how good its yield is and the chance of a good rebound in the next 12 or so months.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Brickworks. 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.