Motley Fool Australia

3 very reliable dividend shares I plan to pay for my retirement

dividend shares
Image source: Getty Images

There are some very reliable dividend shares on the ASX. I plan for a few of them to pay for my retirement.

I think dividend shares are great. It’s very pleasing to receive dividend cashflow from your investments without any effort. There’s a lot of things you need to do when owning a rental property like paying the bills, dealing with a property manager, getting a good tenant into the property, dealing with tenant issues and collating all the info for the tax return. After all that work, a lot of rental properties are actually negatively geared. That means there are more expenses than income each year, you’re losing money.

Dividend shares pay you to own them. You can get juicy, income-boosting franking credits. Many dividend shares generate long-term capital growth as well. I’m planning for these dividend shares to pay for my retirement:

Dividend share 1: Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is a listed investment company (LIC) with a difference. There are no management fees or performance fees involved with this LIC. It donates 1% of its net assets each year to youth charities, hence the name ‘Future Generation’. In 2019 it donated $4.6 million across a number of charities.

The dividend share invests in the funds of fund managers that invest in ASX shares. Those fund managers also work for free to enable Future Generation to give good donations. Some of those quality fund managers include Bennelong, Paradice, Regal, Eley Griffiths and Wilson Asset Management. The underlying diversification is strong because of all the different funds.

Future Generation has been a solid performer. At the end of May 2020 its gross portfolio performance outperformed the S&P/ASX All Ordinaries Accumulation Index over one month, six months, 12 months, three years, five years and since inception in September 2014. 

LICs can turn investment returns into a nice dividend for shareholders. At the current Future Generation share price it offers a grossed-up dividend yield of 7.2%.

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

I think Soul Patts is a great dividend share for a number of reasons. The investment conglomerate has grown its dividend every year since 2000. I’d really like to have that type of income certainty in retirement. In-fact Soul Patts has paid a dividend every year in its listed history since 1903.

The company is invested in a number of shares like TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW) and Australian Pharmaceutical Industries Ltd (ASX: API). It’s also invested in a number of unlisted businesses like swimming schools, resources and agriculture.

Soul Patts retains some of its cash profit each year to re-invest into more investment opportunities. At the current Soul Patts share price, it offers a FY20 grossed-up dividend yield of 4.3%.

Dividend share 3: Magellan Global Trust (ASX: MGG)

Magellan Global Trust could be one of the best set ups for retirement. There is a widely-used rule that suggests that people can withdraw 4% of their portfolio each year in retirement. I’m not sure if that rule works for some investments, particularly when it comes to sequencing risk.

Dividend share Magellan Global Trust targets a 4% distribution yield for its investors. That’s a good starting yield. If the trust makes better total net returns than 4% a year then the distribution payment should steadily grow over time.

At the end of May 2020 it had generated net returns of 12.5% per annum since inception in October 2017. It’s invested in high quality global shares like Microsoft, Alphabet, Visa, Mastercard, Tencent and Alibaba. These types of businesses seem solid in the face of COVID-19

The trust started with a bi-annual distribution of 3 cents per unit. It just announced an upcoming distribution of 3.58 cents per share. At the current Magellan Global Trust share price it offers a distribution yield of 3.85%.

Foolish takeaway

I really like each of these dividend shares for long-term income. I think Soul Patts is the best choice for reliable dividends. Future Generation has the best yield, though Magellan Global Trust could make the best total returns because of its global investment focus on the best businesses.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO, MAGLOBTRST UNITS, 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. 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.

Related Articles…

Latest posts by Tristan Harrison (see all)