2 defensive ASX dividend shares for income

In this article are 2 defensive ASX shares that pay reliable income. One of the stocks is Magellan Infrastructure Fund (ASX:MICH).

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

In this article are two defensive ASX dividend shares that pay reliable income.

The Reserve Bank of Australia (RBA) decided this week to maintain the official interest at just 0.10%.

Here are two ASX dividend shares that pay reliable income to shareholders:

Rural Funds Group (ASX: RFF)

Rural Funds is an agricultural real estate investment trust (REIT).

It owns a diversified portfolio of farming assets. The ASX dividend share has cattle farms, vineyards, almond farms, macadamia farms and cropping properties (sugar and cotton). It currently has 61 properties.

The properties are spread across different states and climactic conditions to add additional diversification to its real estate portfolio.

Most of Rural Funds' tenants are large and listed entities. Some of its tenants include Treasury Wine Estates Ltd (ASX: TWE), Select Harvests Limited (ASX: SHV), Olam, JBS and Australian Agricultural Company Ltd (ASX: AAC).

Most of these tenants are on long-term leases, particularly the almond farms. Rural Farms has a weighted average lease expiry (WALE) of around 11 years at 30 June 2020. It had a gearing ratio of 29.7% at the end of FY20. 

The ASX dividend share aims to increase its distribution by at least 4% per annum. It has achieved this each year over the past several years since it listed.

Rural Funds has rental increases built into its rental agreements. One large group of rental agreements has a fixed 2.5% increase each year. Its other group of rental agreements have increases linked to CPI inflation. Some of those contracts have market reviews with them.

Rural Funds has been investing in productivity improvements at its farms, particularly the cattle properties, to boost the rental income and value of the farm.

For FY21 the ASX dividend share has provided distribution guidance of 11.28 cents per unit, this equates to a forward distribution yield of 4.4%. The FY21 adjusted funds from operations (AFFO) per unit, which essentially measures the cash net rental profit, is expected to come in at 11.7 cents.

Magellan Infrastructure Fund (ASX: MICH)

This is an exchange-traded fund (ETF) which gives investors exposure to infrastructure businesses around the world.

To be considered to make it into the portfolio, the underlying business must provide a service that is essential to the efficient functioning of a community, while generating cash flows that are not subject to external risks such as commodity prices.

On top of that, the ASX dividend share looks at other risks like gearing levels, sovereign risk, regulatory risk and reporting transparency. The businesses that remain should have reliable demand and generate predictable cash flows according to the infrastructure investor.

At the end of October 2020 its biggest holdings were (in alphabetical order): American Water Works, Atmos Energy Corporation, Crown Castle International Enbridge, Eversource Energy, Red Electrica Corporacion, Sempra Energy, Transurban Group (ASX: TCL), Vopak and Xcel Energy.

The COVID-19 decline has caused the net return over the past four years to drop to 5.5% per annum, though that it is still 4.2% higher than the benchmark, being the S&P Global Infrastructure Net Total Return Index. Whilst those figures include the fees, it must be stated that the annual management fee is 1.05% per annum.

Around 42% of this fund is invested in USA assets, with another 22% in Europe and 17% in the Asia Pacific region. The rest of the assets, apart from a 10% cash position, is invested in the UK, Latin America and Canada.

Based on the current Magellan Infrastructure Fund share price, it offers a trailing distribution yield of 4.1%.

Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Treasury Wine Estates Limited. The Motley Fool Australia owns shares of Transurban Group. The Motley Fool Australia has recommended Magellan Infrastructure Fund. 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.

More on ⏸️ Dividend Shares

A boy hold money and dressed in business suit next to money bags on a desk, indicating a dividends windfall
⏸️ Dividend Shares

The Accent (ASX:AX1) dividend has lifted by 22%

The company will reward shareholders with an increased dividend...

Read more »

a woman sits in the driver's seat of a car with her arm resting on the door with a small smile on her face, looking out of the car.
⏸️ Dividend Shares

Carsales (ASX:CAR) share price records a modest rise on dividend slash

Australia's largest online automotive and marine classifieds business notches a conservative share price rise on its latest report.

Read more »

A young entrepreneur boy catching money at his desk, indicating growth in the ASX share price or dividends
Bank Shares

ASX 200 bank shares to follow suit after CBA dividend hike: expert

Dividend investors rejoice! This expert expects more dividends to come from ASX 200 bank shares...

Read more »

sad looking petroleum worker standing next to oil drill
Share Fallers

AGL (ASX:AGL) dividend slashed. Share price down 3% on Thursday

More headwinds for the energy giant as its dividend is now in the spotlight.

Read more »

A girl looks through a microscope at money.
⏸️ Dividend Shares

The ANZ (ASX:ANZ) share price has only gained 10% in 5 years. But have the dividends paid off?

We do the math to see if it has been worth investing in ANZ shares over the long term...

Read more »

man laying on his couch with bundles of money and extremely ecstatic about high dividend returns
⏸️ Dividend Shares

The NAB (ASX:NAB) share price is flat 5 years on. But have the dividends paid off?

We calculate if it has been worth investing in NAB shares over the long run...

Read more »

two children dressed in business attire with joyous, wide-mouthed expressions count money at a desk covered in cash and sacks of money either side.
⏸️ Dividend Shares

Top-10 ASX dividend share delivers market-thumping share price gains

The Holy Grail for income stocks is to return strong capital gains as well

Read more »

happy woman looking at her laptop with notes of money coming out representing financial success and a rising share price and dividend yield
⏸️ Dividend Shares

Mining shares in the ASX 200 might unearth US$26b worth of dividends

Are shareholders about to dig some dividends?

Read more »