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3 ASX dividend shares to grow and diversify your income

piggy bank wearing crown representing asx share dividend king
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It’s getting harder to find good sources of income these days. I think ASX dividend shares could be the answer to grow and diversify your investment income stream.

I believe that businesses can provide investors with the best source of reliable income.

Here are three great income options to consider:

Brickworks Limited (ASX: BKW)

Brickworks is one of Australia’s largest building product businesses. It’s actually the leading brickmaker across the country. It also sells a number of other products including roofing, masonry and precast.

The Brickworks share price has fallen by 20% since the beginning of the COVID-19 share market declines. I don’t think that should be too surprising considering Australian building product revenue was down 10% for the four months to May 2020 and the American building product division is seeing negative earnings in recent months.

However, the ASX dividend share has had some good news recently as well. Amazon recently signed on to be a tenant at the Oakdale West site. Amazon has signed a lease pre-commitment for 20 years. Brickworks owns 50% of the industrial property trust along with Goodman Group (ASX: GMG). Once the Amazon and Coles Group Limited (ASX: COL) distribution facilities are completed the gross assets of the trust are expected to rise above $3 billion. The rental income of the trust has been unaffected by COVID-19.

Brickworks still owns a large amount of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares. This investment provides reliable dividends to Brickworks. Soul Patts’ biggest investment position, TPG Telecom Ltd (ASX: TPG), was finally successful at merging with Vodafone Australia.

As for Brickworks’ ASX dividend share credentials, it hasn’t cut its dividend for more than four decades. At the current Brickworks share price it offers a grossed-up dividend yield of 5.25%.

Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is a listed investment company (LIC) with a big difference to most other LICs. It doesn’t charge shareholders management fees or performance fees. Instead, it donates 1% of net assets to youth charities each year. You can feel good owning this share.

What does the ASX dividend share invest in? It invests its capital into the funds of the best fund managers which invest in ASX shares. Some of those fund managers are: Bennelong, Paradice, Regal, Eley Griffiths and Cooper.

At the end of May 2020, Future Generation reported that its portfolio’s gross performance had outperformed the S&P/ASX All Ordinaries Accumulation Index by 2.2% per annum.

The ASX dividend share has grown its dividend each year since 2015 when it started paying a dividend. At the current Future Generation Investment Company share price it offers investors a grossed-up dividend yield of 7.1%. It’s currently trading at a 12% discount to the May 2020 net tangible assets (NTA).

Duxton Water Ltd (ASX: D2O)

This business purely owns water entitlements and leases them out to farmers.

Water is obviously an important part of the agricultural cycle, so in drier periods water becomes particularly valuable as it did during 2019. The drought seems to be lifting a little, which has pushed down water prices a bit over the past few months.

But I think lower water prices is a buying opportunity, assuming the upcoming ACCC water report doesn’t fundamentally change things for Duxton Water.

The ASX dividend share has been entering into leases to lock in water certainty for farmers and it also locks in income for Duxton Water. The current weighted average lease expiry (WALE) is 2.8 years.

Duxton Water has guided that its bi-annual dividend can steadily increase every six months to a 3.2 cents per share dividend which will be paid in March 2022. The next 12 months of dividends is expected to be 5.9 cents per share. At the current Duxton Water share price this amounts to a grossed-up dividend yield of 6.1%.

Foolish takeaway

I think each of these ASX dividend shares can help diversify your income stream. Each of them should be capable of increasing dividends over the long-term.

At the current share prices it’s hard to pick between Brickworks and Future Generation. Brickworks’ dividend is probably more robust, but Future Generation offers more diversification and a bigger dividend yield.

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Returns As of 6th October 2020

Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO, FUTURE GEN 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 COLESGROUP DEF SET. 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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