ASX banks like National Australia Bank Ltd (ASX: NAB) are now cutting their dividends. Which ASX shares should you buy now for income?
I've never liked the major ASX banks for dividends because of the possibility of a dividend cut during difficult economic times like we're seeing now. Banks just aren't defensive.
Who knows when bank dividend payments will go back to normal? I wouldn't want to bet on a date. I think these dividend payers provide better long-term income:
Brickworks Limited (ASX: BKW)
Brickworks has maintained or grown its dividend every year for over forty years. That's an extremely reliable record.
At the current share prices, Brickworks has a grossed-up dividend yield of 6.7%. NAB's annualised grossed-up dividend yield is 5.4%.
It's one of the few businesses that are set up to be able to keep growing its dividend during this period. It has defensive assets like its industrial property trust and its 'investments' division which pay reliable cashflow to Brickworks each year. Those earnings are growing over time.
The construction industry is definitely going to see issues over the next 12 months because of the coronavirus, but it will come back to normal in Australia and the US at some point. Until then, I think Brickworks can remain a solid dividend option.
Rural Funds Group (ASX: RFF)
Rural Funds has recently re-iterated its guidance again, with guidance of a FY21 distribution of 11.28 cents per share, equating to a distribution yield of 5.75% which is more than NAB's forward yield.
It's a farmland real estate investment trust (REIT) which owns a diversified farm portfolio including almonds, macadamias, cattle and cotton. These farms are spread across different states and different climates, which reduces risk.
The rental contracts have rental indexation built into them with rental increases linked to either CPI inflation or a fixed 2.5%, with market reviews. It also invests in productivity improvements for tenants at its farms to boost the value and rental income.
It aims to grow its distribution by 4% each year and it has been successful with this so far.
WAM Leaders Ltd (ASX: WLE)
This is a listed investment company (LIC) that invests in Australia's large businesses. It is willing to be active with its investing when it sees opportunities, and sell when it's the right thing to do.
Some of its top holdings give it exposure to gold (which is benefiting from a lower Australian dollar and higher gold price) as well as other large shares that could still do quite well including A2 Milk Company Ltd (ASX: A2M), Woolworths Group Ltd (ASX: WOW), Rio Tinto Limited (ASX: RIO), Coles Group Limited (ASX: COL) and Orora Ltd (ASX: ORA).
It has grown its dividend each year for the past few years and currently offers a grossed-up dividend yield of 9.1%.
Foolish takeaway
All three of these shares have good long-term income prospects in my opinion. At the current prices I'd go for Brickworks. Its dividend is supported by investment cashflow, and it's trading cheaply considering construction will start up again at some point. Rural Funds could be a solid income option too, I just don't think it's as cheap.
