In this article I'm going to talk about three ASX dividend shares with income yields of more than 5%.
I think that ASX dividend shares are the only answer for people looking for income. The RBA interest rate is almost at 0%. That's not going to generate much interest from a bank account.
These three ASX dividend shares offer yields that are at least 5% better than the RBA rate and I think they're trading at pretty good value:
Rural Funds Group (ASX: RFF)
Rural Funds is a real estate investment trust (REIT) that owns agricultural land and leases it to high-quality operators. Some of its tenants include Select Harvests Limited (ASX: SHV), Treasury Wine Estates Ltd (ASX: TWE), Olam and JBS. It owns various farm types including cattle, cotton, macadamias, vineyards and almonds.
The resilience of farmland has shown through during this difficult COVID-19 period. We all need to eat, so Rural Funds and its tenants can still expect demand for the produce. Rural Funds was able to stick to its 4% distribution growth guidance in FY20 and FY21. The farmland REIT tries to grow its distribution by 4% every year.
The ASX dividend share has increased its distribution every year since it started paying one several years ago. The distribution can grow because of the built-in rental indexation that is included in Rural Funds' rental contracts. The rental income increases by either a fixed 2.5% per annum or it's linked to CPI inflation, plus market reviews.
At the current Rural Funds share price it offers a FY21 yield of 5.6%.
WAM Leaders Ltd (ASX: WLE)
WAM Leaders is a listed investment company (LIC) that invests in large cap ASX shares on behalf of its shareholders.
It's not just a passive holder of shares. It actively trades, so it's possible to make good returns even in volatile (mostly negative) periods. FY20 is a great example of WAM Leaders' capability to outperform. In the year to 30 June 2020 WAM Leaders' investment portfolio returned 2.7% (before expenses, fees and taxes), outperforming the S&P/ASX 200 Accumulation Index by 10.4% which returned a negative 7.7%.
The ASX dividend share can turn its investment returns into a smoothed dividend for shareholders. That dividend has grown every year since FY17 when it started paying a dividend.
At the end of June 2020 some of its largest positions included shares like Newcrest Mining Limited (ASX: NCM), OZ Minerals Limited (ASX: OZL), Wesfarmers Ltd (ASX: WES), Woolworths Group Ltd (ASX: WOW), CSL Limited (ASX: CSL), Goodman Group (ASX: GMG), BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).
Thankfully it's trading at a discount to its net tangible assets (NTA) of $1.176 per share at 30 June 2020. At the current WAM Leaders share price of $1.16, the ASX dividend share offers a grossed-up dividend yield of 8%.
Vitalharvest Freehold Trust (ASX: VTH)
Vitalharvest is another agriculture-related REIT. At the moment it owns some of the largest berry and citrus farms in the country, which are leased to Costa Group Holdings Pty Ltd (ASX: CGC). The ASX dividend share has a profit share agreement with Costa, so it also suffers in bad years and benefits in good years.
I think Costa and Vitalharvest are likely to report improving operating profit numbers over the next 12 months. Despite a difficult period, at the current share price Vitalharvest still offers a distribution yield of 6.1%. A return to 2019's profitability could mean a distribution of 5.65 cents per unit, equating to a yield of 7.2%.
I think Vitalharvest's distribution outlook and share price could improve over the next 12 months as the new manager shifts the REIT towards assets that are used in the food supply chain process.
Primewest Group Ltd (ASX: PWG) is looking for assets that are used for food processing and food storage, on top of the usual farmland targets.
At 31 December 2019 it had a net asset value (NAV) of $0.95 per share. That means the Vitalharvest share price is trading at an 18% discount to the NAV, assuming the NAV hasn't changed since then.
Foolish takeaway
I like all three of these dividend shares for income. Rural Funds has the most reliable distribution in my opinion. WAM Leaders has proven to be a solid performer. Vitalharvest could be the best value buy as it's trading cheaply compared to its assets. I don't think the market is appreciating how much value Vitalharvest offers investors at the moment.
