I think that there are some ASX dividend shares that are worth a spot in every income investor's portfolio.
Some ASX dividend shares offer very large dividend yields like WAM Research Limited (ASX: WAX). But that may not suit everyone. Perhaps they want more of the returns in the form of capital growth. Or maybe they are in a higher tax bracket and they don't want to lose too much of the income to the ATO each year.
I think the below ASX dividend shares give the right mix of yield and growth:
Share 1: Magellan Global Trust (ASX: MGG)
This is a listed investment trust (LIT) which invests in overseas shares.
In terms of yield, it targets a 4% distribution yield for unitholders. That seems high enough to soundly beat income from a bank account, but low enough to retain a majority of the longer-term returns for future growth.
The ASX only makes up 2% of the global share market, so Aussies are missing out on a lot of potential opportunities if they don't go for international shares.
The ASX dividend share only invests in the best shares in the world. Over the long-term these types of businesses can be compound growth machines. Some of its largest positions include Microsoft, Alphabet, Tennant and Alibaba.
At 31 May 2020, the LIT had made an average return per annum after fees of 12.5% since inception in October 2017, outperforming the MSCI World Net Total Return Index (AUD) by 1.52% per annum. Don't forget that the returns include the period of the recent COVID-19 share market sell off.
Share 2: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
This is an investment conglomerate that has been listed since 1903.
Taking into account the upcoming final FY20 dividend increase, Soul Patts has a FY20 grossed-up dividend yield of 4.4%.
The ASX dividend share has grown its dividend every year since 2000 and it has paid a dividend every year since 1903. That's the best dividend record on the ASX in terms of consecutive annual dividend growth.
The investment conglomerate receives investment income from its portfolio each year. Some of its biggest holdings include: TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Clover Corporation Limited (ASX: CLV) and Bki Investment Co Ltd (ASX: BKI).
Soul Patts funds its own dividend from the investment income, less operating expenses. In FY19 it paid out about 80% of its net regular operating cashflows. So not only does Soul Patts keep all of the capital growth, but it can also re-invest the cashflow that's retained as well.
This ASX dividend share is one that could be in a portfolio for decades, so I think it's well worth an investment at a share price under $20.
Share 3: WAM Microcap Limited (ASX: WMI)
This is a listed investment company (LIC) which invests in ASX shares with market capitalisations under $300 million.
The benefit of LICs is that they can do the investing on your behalf and they can turn capital growth into a growing dividend for shareholders.
I believe that WAM Microcap could be one of the best-performing LICs over the next decade. Small caps aren't closely followed by many investors, so they can be better value and have stronger long-term earnings potential.
At the end of May 2020, WAM Microcap had made returns (before expenses, fees and taxes) of 14.3% per annum since inception in June 2017. That's a strong return despite the COVID-19 selloff, which hurt, particularly for the small cap end of the market.
WAM Microcap has an annualised dividend per share of 6 cents, which translates to a grossed-up dividend yield of 7%.
Foolish takeaway
I reckon each of these ASX dividend shares are some of the best Aussies can buy. I believe they can create strong total returns with a good starting yield and long-term dividend growth. At the current prices I'd probably go for WAM Microcap.
