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3 of the best ASX dividend shares for income

ASX dividend shares are a great place to generate income from your money.

Cash in the bank just isn’t making enough money these days. Savings accounts are still the best place to protect your capital from harm in the short-term, but a return of 2% isn’t going to cut it for the long-term.

But I wouldn’t just go for any ASX dividend share that has a decent dividend yield. There are positives and negatives to high dividend yields.

I’d only want to go for shares that look like they can sustainably maintain and increase the dividend:

Share 1: WAM Leaders Ltd (ASX: WLE)

WAM Leaders is a listed investment company (LIC) which invests in the larger businesses on the ASX.

However, it doesn’t behave like a passive exchange-traded fund (ETF). It actively changes its holdings so that it can try to outperform the market. At the end of May 2020 it had outperformed the S&P/ASX 200 Accumulation Index since inception by 3.8% per annum before fees, expenses and taxes.

The ASX dividend share is able to turn that strong performance into smoothed dividends for shareholders. WAM Leaders has grown its dividend every year since FY17. It was only launched in May 2016.

Some of the shares that it owned in its portfolio at 31 May 2020 were: Amcor Plc (ASX: AMC), CSL Limited (ASX: CSL), Downer EDI Limited (ASX: DOW), Fortescue Metals Group Limited (ASX: FMG) and Wesfarmers Ltd (ASX: WES).  

It currently has an annualised grossed-up dividend yield of 8.8%.

Share 2: Rural Funds Group (ASX: RFF)

Rural Funds is an agricultural real estate investment trust (REIT). It owns a variety of farm types including cotton, cattle, almonds, macadamias and vineyards.

The REIT has rental indexation built into all of its rent contracts. The rent is contracted to grow by a fixed 2.5% per annum or by CPI inflation, plus market reviews.

It’s largely this built-in rental growth that allows management to forecast that the distribution can grow by 4% per annum.

Another factor for the growth is that Rural Funds invests in productivity improvements at its farms to help the tenant, whilst also boosting the rental income potential and value of the farm. The ASX dividend share only pays out about 80% of its net rental profit each year, allowing the other 20% to be utilised for the farm improvements.

Rural Funds has forecast that the FY21 distribution will be 11.28 cents per unit, which equates to a forward yield of 5.5%.

Share 3: Brickworks Limited (ASX: BKW)

Brickworks has paid a dividend every year that it has been listed on the ASX. It also hasn’t cut its dividend for 40 years. I think that’s a great wonderful record.

The diversified property business has a number of interesting elements which should support the current dividend and enable future dividend growth.

It owns a large chunk of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares. The investment conglomerate itself provides Brickworks with a consistently-growing dividend.

Brickworks also owns a 50% stake of an industrial property trust along with Goodman Group (ASX: GMG). Amazon may soon be a tenant at the Oakdale West Estate in Kemps Creek with one of the largest online fulfilment warehouses in the country.

The ASX dividend share is probably best known for being the market-leading brickmaker in Australia. It also sells plenty of other products including roofing, precast, paving and masonry. I think this division will continue to perform well once the economy returns to normal.

Finally, Brickworks recently expanded into the US by making three targeted acquisitions. It’s now the market leader in the north east of America.

Brickworks currently has a grossed-up dividend yield of 5.4%.

Foolish takeaway

Each of these ASX dividend shares have very attractive dividend yields. They also have a history of dividend growth. At the current prices I think it makes sense to go for WAM Leaders and Brickworks the most because they are trading at very good value compared to their pre-tax net tangible assets (NTA).

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Tristan Harrison owns shares of RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Amcor Limited, Brickworks, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. 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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