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3 great ASX dividend shares for FY21

We are nearly into FY21. I think there are some great ASX dividend shares which could generate attractive capital growth and pay good dividends over the next 12 months and the long-term.

I think it can be dangerous to just invest for a dividend yield. I believe we need to go for dividend shares that have the ability to generate a good stream of dividends as well as grow earnings (and eventually the share price).

Here are some dividend ideas for FY21:

Dividend share 1: Duxton Water Ltd (ASX: D2O)

Duxton Water is a company which purely owns water entitlements and leases them to agricultural businesses.

Water is obviously an integral part of the farming process. Farmers need access to water entitlements unless it’s a relatively wet year.

The last few years in Australia have been quite dry, which is partly why water values have been pushed up so much.

However, Duxton Water also points to the ongoing maturity of permanent plantings which are causing greater water demand. High value crops such as almonds and citrus are two areas where water demand is very high.

The ASX dividend share’s board is committed to pay bi-annual dividends. It intends to increase its dividend every six months. It wants to pay a dividend of 2.9 cents per share in September 2020 and by March 2022 it wants to pay a 3.2 cents per share dividend.

However, be aware that a wetter year can reduce water values. Also, the ACCC is going to release a report in July 2020 about the water system. The release of the report may prove to be a buying opportunity.

Duxton Water has an estimated forward grossed-up dividend yield of 6.2%.

Dividend share 2: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

If you regularly read my articles you’ll know that Soul Patts is an ASX dividend share favourite of mine.

I think the investment conglomerate could have a solid next 12 months.

The merger between TPG Telecom Ltd (ASX: TPM) and Vodafone Australia is about to go ahead. TPG is Soul Patts’ biggest position, so what happens with TPG is important. Since 1 May 2020 the TPG share price has gone up 26%. I think TPG could generate even more returns for Soul Patts from the upcoming special dividend, higher regular dividends and plenty of cost and revenue merger benefits.

I think another of Soul Patts’ holdings has an exciting 12 months ahead. The Brickworks Limited (ASX: BKW) share price is down 24% since the start of the COVID-19 selloff. Its underlying non-construction assets look as solid as ever. I believe at some point demand for building products will start to return, perhaps as early as FY21. I expect the share price will reflect the optimism sooner than the earnings.

Soul Patts has grown its dividend every year since 2000. I think the ASX dividend share can keep growing its dividend annually for a long time to come.

It currently offers a grossed-up dividend yield of 4.3%.

Dividend share 3: APA Group (ASX: APA)

This ASX dividend share is my preferred infrastructure play. I do think Sydney Airport Holdings Pty Ltd (ASX: SYD) is an interesting idea at this low price, but the income portion of the FY21 returns is very unclear at the moment, so I’m not sure I can pick it yet as a ‘dividend’ idea.

APA 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). APA owns, or manages and operates, a portfolio of assets worth more than $21 billion and delivers half the nation’s natural gas usage.

The energy infrastructure giant generates reliable cashflow each year, which allows it to fund the ever-increasing distribution. It has grown its distribution every year for the past decade and a half. It currently has a FY20 distribution yield of 4.4%.

Foolish takeaway

Each of these ASX dividend shares have solid income potential over the next 12 months. I think the share prices can rise too. At the current value I’d go for Soul Patts, I think its exposure to TPG will be very useful as the telco profits from the merger.

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Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of APA Group. 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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