Investing for dividends is a strategy that many investors religiously follow — and for good reason. The ASX is an exchange with a long-appreciated focus on dividend income.
In fact, If we take a look at an S&P/ASX 200 Index (INDEXASX: XJO) fund like the SPDR S&P/ASX 200 ETF (ASX: STW), we can see that since 2001 the fund has returned an average of 7.14% per annum. Of this 7.14%, 4.62% came from dividend income, with only 2.52% coming from capital growth. So in my view, it makes complete sense to focus on the income side of investing.
With that in mind, here is how I would construct a $100,000 ASX share portfolio with franked dividend income as a goal.
Telstra Corporation Ltd (ASX: TLS) – $30,000
Our first cab off the rank is Telstra. I like Telstra as a dividend play because it is a very defensive company. The services it provides (mainly fixed-line internet and mobile networking) are extremely inelastic these days. This means customers are highly unlikely to switch off their internet no matter how tight money might be. This plays well for a dividend share, as it indicates that Telstra’s payouts are relatively safe in all economic environments. On current prices, Telstra shares are offering a trailing yield of 5.1% (including the special nbn dividends) — or 7.29% grossed-up with full franking.
Brickworks Ltd (ASX: BKW) – $30,000
Brickworks is one of the oldest ASX dividend shares and also one of the most reliable. It has either maintained or grown its dividend every year since 1976. Brickworks is a diversified construction manufacturing company. It’s building materials business is healthy and has been expanding into North America in recent years. But brickworks also has some property interests as well as a large stake in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). These ‘side-hustles’ lend the company a great deal of earnings diversification which greatly helps Brickworks ride out the volatility of the construction sector. On current prices, brickworks shares are offering a trailing yield of 3.8% — or 5.43% grossed-up.
Rio Tinto Limited (ASX: RIO) – $20,000
This ming giant makes the cut for our dividend portfolio as well. Rio is a massive global resources company that makes most of its earnings from iron ore mining. In recent months, the iron ore price has shot through the roof due to some supply issues in the sizeable Brazilian mining industry, which has been a boon to low-cost producers like Rio. But Rio isn’t a one-trick pony, it also has significant operations in gold, copper and diamond minging as well. On the back of strong commodity prices over the year so far, I am expecting equally strong dividend payments from Rio Tinto in 2020. On current prices, Rio shares are offering a trailing yield of 5.83% — or 8.33% grossed-up with full franking.
Magellan Financial Group Ltd (ASX: MFG) – $20,000
Magellan is our final pick for the $100,000 dividend portfolio. Thi company is an ASX financial that I think is offering a far more compelling case for dividend income than the ASX banks right now. Magellan is in the business of funds management, of which it is the largest in Australia. It’s run by the reputable Hamish Douglass, who has made a name for himself in recent years by his funds’ consistent outperformance and global exposure. Magellan’s flagship managed fund (the Magellan Global Fund) has returned an average of 15.55% over the past 10 years. Magellan currently offers a trialling yield of 3.58%, which comes partially franked.
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Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, Telstra Limited, and Washington H. Soul Pattinson and Company 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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