I've got some ideas for where I'd invest $10,000 into ASX dividend shares.
Having cash in the bank just doesn't earn the same amount of interest as it used to. That's because Australia's official interest rate is now just 0.25%. I think the answer is to put some money into the share market into businesses that generate profit and pay dividends.
Here are some of the best ASX dividend shares that I'd be willing to invest in right now:
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) – $3,500
I think that Soul Patts is the best ASX dividend share that Aussies can buy. It has been listed since 1903 and it has paid a dividend every year since then, including through the world wars.
The investment house owns a variety of different listed and unlisted businesses. It has shares in things like TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Clover Corporation Limited (ASX: CLV) and Palla Pharma Ltd (ASX: PAL). It also has unlisted investments like resources, swimming schools, property and financial services.
Soul Patts has grown its dividend every year for the past two decades. It's quite reassuring knowing your investment is likely to increase the dividend this year.
At the current Soul Patts share price it offers a grossed-up dividend yield of 3.5%.
Rural Funds Group (ASX: RFF) – $2,500
Rural Funds has been one of the most consistent ASX dividend shares over the past five years. Management aim to grow the distribution by 4% every year, and it has achieved that. It's a solid growth rate when it's compounded year after year.
The farmland real estate investment trust (REIT) owns various farm types including almonds, cattle, macadamias, vineyards and cropping (sugar and cotton) which are leased to high-quality tenants.
Rural Funds manages to grow its distribution consistently because rental indexation is built into the contracts. Some contracts see the rental income grow by a fixed 2.5% per annum. Other contracts have rental growth linked to CPI inflation. It has long rental contracts, so its distribution growth is almost locked in. It also benefits from investing in productivity improvements at its farms.
At the current Rural Funds share price it has a FY21 distribution yield of 5%. That's a solid yield for an ASX dividend share.
WAM Microcap Limited (ASX: WMI) – $1,500
I think that WAM Microcap is one of the best listed investment companies (LICs) on the ASX. The purpose of a LIC is to invest in other shares on behalf of shareholders.
WAM Microcap looks to invest in businesses with market capitalisations under $300 million at the time of acquisition.
It has done extremely well since the bottom of the COVID-19 crash. Since 23 March 2020 the WAM Microcap share price has grown 92%.
The ASX dividend share is steadily growing its dividend and it has also paid a special dividend in each of the last three financial years. That's a great income record.
The LIC's investment team are very effective at finding those opportunities. Returns won't also be good as the last six months, but I think it can produce total shareholder returns that beat the market over the long-term.
At the current WAM Microcap share price it offers an ordinary grossed-up dividend yield of 5.25%.
Future Generation Investment Company Ltd (ASX: FGX) – $2,500
Future Generation is another LIC, but it's quite different.
It invests in the funds of fund managers who work for free so that Future Generation can donate 1% of its assets each year to youth charities.
All of those funds offer a lot of diversification. Future Generation's portfolio has outperformed the ASX since inception yet it's trading at a 9% discount to the net tangible assets (NTA) at the end of August 2020.
Future Generation is steadily growing its dividend and it currently has a grossed-up dividend yield of 6.5%.
