ASX dividend shares can be a really effective way of boosting investment income.
Interest rates may be rising in Australia, but many dividend-paying businesses still offer higher dividend yields than what someone may be able to get from a savings account.
I like that businesses also have the ability to invest for growth and can grow their dividends as earnings and/or cash flow increase.
However, it's important to remember that dividends (and distributions) are not guaranteed. There may be years that shareholder payouts do not grow. Payouts can be reduced, or cut entirely.
But, I think these two companies have compelling futures as far as income growth and distributions are concerned.
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Rural Funds Group (ASX: RFF)
Rural Funds is my favourite real estate investment trust (REIT) because of its assets and targeted distribution growth.
It owns a portfolio of farms across different sectors including cattle, almonds, vineyards, macadamias and cropping (sugar and cotton).
This ASX dividend share aims to grow its distribution by 4% per annum.
It can do this because of three factors. First, rental indexation is built into its contracts with its high-quality tenants, which are linked to a fixed increase or CPI inflation. This helps rental income grow organically each year.
Next, it is regularly investing in its farms to improve the productivity for tenants, increasing that farm's capital value and rental potential.
Finally, it occasionally makes an acquisition to grow its portfolio.
In FY23, Rural Funds has guided that it will pay a distribution of 12.2 cents per share (including franking credits). That translates into a forward distribution yield of 4.5%.
Centuria Industrial REIT (ASX: CIP)
This ASX dividend share is another REIT, but it's focused on industrial commercial properties in high-demand areas where there is a limited supply.
The REIT's fund manager, Jesse Curtis, recently described the optimistic case for ongoing rental growth:
The Australian industrial real estate market remains underpinned by low vacancy and record tenant demand, which drives strong rental growth across all markets. With an active management team and high-quality industrial portfolio, Centuria Industrial REIT continues to be a beneficiary of these favourable market conditions with positive leasing activity and rental growth supporting portfolio valuations.
The portfolio was recently externally valued as at 30 June 2022, leading to a 1.3% increase in the book values compared to December 2021.
At December 2021, it had a net tangible asset (NTA) per unit of $4.21. The current Centuria Industrial REIT share price of $3.04 is at a 28% discount to this, leaving a lot of margin of safety for if/when book valuations decrease. Keep in mind that the Centuria Industrial REIT's share price has fallen by more than 20% over the last six months.
CMC Markets has an estimated distribution from the REIT of 16.5 cents per unit in FY23, translating into a forward distribution yield of 5.4%.
