I believe that ASX dividend shares are great options for income.
The official RBA interest rate is now just 0.25%. You won't get much interest from a bank account. I'd want to make my money work harder than that, so I'd go for ASX shares that will be good dividend picks.
However, I don't think that most ASX blue chips are the answer. We have seen dividend cuts from shares like National Australia Bank Ltd (ASX: NAB) and Sydney Airport Holdings Pty Ltd (ASX: SYD) during this COVID-19 era.
I think these ASX dividend shares could be much better ideas for long-term income:
Future Generation Investment Company Ltd (ASX: FGX)
Future Generation is a listed investment company (LIC). The job of a LIC is to invest in other assets on your behalf. LICs are good options to be ASX dividend shares because they can turn investment returns (including capital growth) into a consistent dividend for their shareholders.
This LIC is quite different to most other LICs on the ASX. It doesn't charge any management fees or performance fees. Instead, it donates 1% of its net assets each year to youth charities. Future Generation invests in the funds of fund managers who invest in ASX shares. These fund managers don't charge any fees so that Future Generation can make those donations to youth charities.
Its investment returns are compelling. At the end of June 2020 it reported that over FY20 its gross portfolio performance showed a decline of just 1.2%, outperforming the S&P/ASX All Ordinaries Accumulation Index by 6% (which fell 7.2%).
At the current Future Generation share price it offers a grossed-up dividend yield of 7%. The share price is trading at an 11.5% discount to the June 2020 net tangible assets (NTA) per share. That means you're buying $1 of assets for less than $0.90.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts has one of the best ASX share dividend records around. It has grown its dividend every year since 2000. It has actually been listed since 1903 and it has paid a dividend every single year including through world wars, recessions, the Spanish Flu and any other disaster you can name over the past century.
It's an investment house that's invested in a variety of listed and unlisted businesses. Some of its main ASX share investments are: TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Milton Corporation Limited (ASX: MLT), Bki Investment Co Ltd (ASX: BKI), Palla Pharma Ltd (ASX: PAL) and Clover Corporation Limited (ASX: CLV).
Some of its unlisted assets include swimming schools, agriculture, luxury retirement living and soon it will be involved in regional data centres.
Soul Patts has defensive assets which are well diversified. The investment conglomerate continues to diversify its portfolio and it has a strong focus on cashflow. Each year it tells investors what its regular operating cashflows are – this is the investment income minus operating expenses (and a few other small items). Soul Patts funds its dividend from its annual net cashflow. In FY19 it only paid out 80% of its net cashflow.
At the current Soul Patts share price it offers a grossed-up dividend yield of 4.2%.
APA Group (ASX: APA)
I think APA is a high-quality ASX dividend share. It has increased its distribution every year for the past decade and a half.
The business 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.
It generates a reliable source of cashflow from its national customer base. This allows APA to pay a dependable distribution to shareholders each year. That's why it was able to stick to its annual FY20 guidance of 50 cents per unit.
Using the FY20 annual distribution, at the current APA share price, it's trading with a 4.5% distribution yield. I think it's very likely that FY21 will see another increase for investors.
Foolish takeaway
I really like all three of these ASX dividend shares. At the current prices I think Future Generation looks like the best value, but Soul Patts has a great dividend history and it's the one that I'd rely on for my investment income in retirement because of its reliability.
