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2 ASX dividend shares for steady income in retirement

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ASX dividend shares may be very useful for providing attractively stable income in retirement.

It’s hard to generate much income from fixed-income investments like term deposits and bonds at the moment because of how low interest rates are with central banks like the Reserve Bank of Australia (RBA) setting the rate at almost 0%.

But some growth assets like shares can be quite volatile, as we saw during the COVID-19 crash a year ago. Some ASX dividend shares may be able to provide higher yields and reliable income for retirees, like these two:

Rural Funds Group (ASX: RFF)

Rural Funds is one of the few real estate investment trusts (REITs) that managed to increase the distribution during the COVID-19-affected year of 2020.

The agricultural landlord owns a variety of farmland including almonds, macadamias, cattle, vineyards and cropping (sugar and cotton).

Rural Funds is happy to use an acquisition strategy to buy farmland and then convert it to higher and better use. For example, it recently bought sugar cane properties and plans to turn them into macadamia farms. The ASX dividend share can also re-invest some of its rental profits into improving existing properties, such as investing in more water access for cattle properties.

It aims to provide investors with a good distribution which grows by 4% each year. A large amount of this growth is funded by the contracted rental growth in its properties. Those increases are either a fixed 2.5% annual increase, or linked to CPI inflation, plus occasional market reviews.

Rural Funds has provided guidance that the FY22 distribution will be 11.73 cents per unit, which translates to a forward yield of around 5% at the current Rural Funds share price.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Patts is an ASX dividend share that has been increasing its payout to shareholders every year for two decades.

The business operates as an investment conglomerate and owns a diversified portfolio of different assets. Some of its holdings are listed businesses like Brickworks Limited (ASX: BKW), TPG Telecom Ltd (ASX: TPG), New Hope Corporation Limited (ASX: NHC), Australian Pharmaceutical Industries Ltd (ASX: API), Bki Investment Co Ltd (ASX: BKI), Milton Corporation Limited (ASX: MLT), Palla Pharma Ltd (ASX: PAL), Pengana International Equities Ltd (ASX: PIA) and Pengana Capital Group Ltd (ASX: PCG).

The old business also has various unlisted investments in industries and companies such as resources, swimming schools, financial services, agriculture and a business called Ampcontrol.

Management try to find investments that are defensive and different to each other, so that they may act different to the wider economy in a recession. Soul Patts tries to buy businesses with a contrarian approach – finding opportunities that most other investors are avoiding, which could mean a cheap price.

The ASX dividend share funds its dividend from its investment income, after paying for its operating expenses. It pays out some of the net cashflow and retains the rest to invest back into more assets to unlock more growth. In FY20 it paid out around 57% of its regular operating cash flows. TPG, New Hope and Brickworks are responsible for a large chunk of the cashflow at the moment.

At the current Soul Patts share price it has a grossed-up dividend yield of 2.8%.

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Returns As of 15th February 2021

Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. 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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