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3 top ASX dividend shares for a better retirement

Retired couple

Retirement can be a confronting transition for many ASX investors. It heralds a shift in your relationship with your money.

Instead of saving and investing to build your nest egg, you’re spending that nest egg (or the proceeds from it) to cover your costs of living. Instead of working for your keep with labour, you are instead relying on investment income from interest, dividends and franking credits, as well as pensions and savings.

With that in mind, dividend-paying shares can be a great way to boost the cash available to you in retirement, especially in this era of near-zero interest rates. The income dividend shares can produce can help to replenish the assets you’re spending down to cover your costs, or help with your portfolio’s ability to meet your future needs.

These 3 top dividend shares can help in this quest for a better, more comfortable retirement.

A consumer staples giant

Our first ASX dividend share to consider for a better retirement today is Coles Group Ltd (ASX: COL). Coles is a company we’d all probably be familiar with. It owns the eponymous supermarket chain, as well as a slew of bottle shops such as Liquorland and First Choice Liquor.

What makes Coles appealing an ASX retirement dividend share is its very nature. Being in the business of selling everyday essentials like food, drinks, toilet paper, razors, laundry powder, Coles is always going to be a business where people need, rather than want, to visit. That’s the beauty of owning a consumer staples company.

We saw this advantage on full display in 2020. Amidst rampant economic and social uncertainty across the year, Coles managed to increase sales revenue by 6.9% across FY2020. That enabled Coles to bump up its 2020 final dividend by 14.6% over the previous year’s payout. That’s the kind of certainty that would benefit a retiree’s share portfolio.

On current pricing, Coles’ dividend is worth a trailing yield of 3.13%, or  4.47% grossed-up with Coles’ full franking credits. Goldman Sachs currently rate Coles shares as a ‘buy’ today, with a 12-month price target of $20.50 a share and a forecast yield of 4.5% by FY2023.

An ASX telco dividend stalwart

Our next ASX dividend share for a better retirement is Telstra Corporation Ltd (ASX: TLS). Telstra has not been a lot of retirees’ favourite share, I’d wager. Investors who bought into the T2 Telstra float back in 1999 have never seen their shares above water since. And Telstra infamously slashed its cherished dividend payments back in 2017, much to the dismay of its shareholders.

However, even though the Telstra of today isn’t the same company as it used to be, doesn’t mean it’s not a valuable retirement income share today.

Much like Coles, Telstra has benefitted from an inelastic, needs-based earnings base in 2020. An internet connection or mobile phone is perhaps one of the last things people will stop spending money on in our modern age.

And that has helped Telstra keep its dividend payments steady over 2020. The company paid out 16 cents per share in dividends over the year and has all-but-guaranteed this dividend will be repeated in FY2021 as well. That gives Telstra shares a healthy trailing yield of 5.3% on current pricing, or 7.57% grossed-up with Telstra’s full franking credits.

Goldman Sachs has also given Telstra a current ‘buy’ rating, with a 12-month price target of $3.75 a share.

An ASX dividend king

One of the most important factors a retiree should consider in an ASX dividend share is income certainty. After all, the reason why dividend shares offer higher yields than term deposits is the risk we take from investing in them. Unlike a term deposit, there is no guarantee of either income or capital preservation with any company, dividend-paying or otherwise.

But our final ASX dividend share could be one of the best alternatives the ASX has to offer. That’s because of Washington H. Soul Pattinson & Co Ltd (ASX: SOL) has an unimpeachable record of dividend payments, unrivalled by any other company.

Like clockwork, it has managed to deliver 20 years of straight dividend increases to its investors as of 2020. That’s an impressive record when you consider that includes the ‘tech wreck’, the global financial crisis, and the coronavirus pandemic.

The annual shareholder pay rises aren’t tokenistic either. Soul Patts’s dividends in 2001 amounted to 11 cents a share. In 2020, they were 60 cents a share, which represents a compounded annual growth rate of 9.2% per annum (beating inflation hands down). In 2020 alone, the increase was a comfortable 3.4% on 2019’s payouts.

Part of this success is likely Soul Patts’ unique structure. It’s an industrial conglomerate, owning large stakes in a wide variety of other ASX companies. These include TPG Telecom Ltd (ASX: TPG), Brickworks Ltd (ASX: BKW) and New Hope Corporation Limited (ASX: NHC).

In fact, in its 2020 annual general meeting, Soul Patts told investors that it has managed to return an average of 14.3% per year to shareholders (that includes share price growth and dividends) over the past 20 years. On current pricing, Soul Patts’ dividend is worth a yield of 1.98%, or 2.83% grossed-up with full franking credits.

Foolish takeaway

All 3 of these ASX dividend shares could be perfect choices for a retirement portfolio. None are absolutely safe of course, but all 3 companies’ recent track record of dividends leave term deposits in the dust. Whether you are about to retire, or you already have retired, there are many stones to look under on the sharemarket for dividend income.

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Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, Telstra Limited, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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