Here's how I'd invest $5,000 in ASX dividend shares to earn a second income

Quarterly dividend payers could unlock regular extra income for investors.

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Key points
  • Charter Hall Long WALE REIT owns a diversified commercial property portfolio with long-term tenants in place
  • Rural Funds owns a diversified farm portfolio which aims to grow its distribution by 4% per annum
  • GQG is a growing funds manager which aims to have a high dividend payout ratio

Some ASX dividend shares could pay strong enough dividend income that they could start building their investors a second income.

Certainly, there are more ways to benefit from owning shares than just capital growth. Dividends are also a great way to benefit from the profit growth that businesses are achieving in the form of attractive real cash returns.

Businesses that pay dividends or distributions quarterly can be a good source of regular income. Below are three examples I think could be good income contenders, spread across an investment of $5,000.

A mature aged man with grey hair and glasses holds a fan of Australian hundred dollar bills up against his mouth and looks skywards with his eyes as though he is thinking what he might do with the cash.

Image source: Getty Images

Charter Hall Long WALE REIT (ASX: CLW)

This is a real estate investment trust (REIT) that owns a diversified portfolio of properties across Australia including distribution centres, Bunnings Warehouse properties, service stations, telco exchanges, agri-logistics, offices for blue chip tenants, and so on.

What links all the properties is their tenants are signed on for long-term leases. This provides income security for the ASX dividend share. It has a weighted average lease expiry (WALE) of 12 years.

Around half of the leases are linked to CPI inflation, with the average forecast rent increase being 6.3%. The other half of the leases are fixed with an average increase of 3.1%.

After a 16% decline in the Charter Hall Long WALE REIT share price since the end of April, the guided distribution of 28 cents translates into a forecast distribution yield of 6.3%.

Rural Funds Group (ASX: RFF)

Rural Funds is a unique REIT in that its portfolio is farmland properties. They are spread across a number of sectors including almonds, macadamias, vineyards, cattle, and cropping (sugar and cotton).

The business aims to grow its distribution for investors by 4% per annum, which can compound nicely over the years.

I think farmland is a very useful asset because of how integral food is to humanity. Farms have been productive assets for centuries and I believe this will continue for many years to come.

Like Charter Hall Long WALE REIT, some of Rural Funds' rental income is linked to inflation, while a large portion of the rest is a fixed 2.5% annual increase.

The business is also able to grow rental income by investing in productivity improvements at its farms. These can unlock more rental potential and improve the value of the farm. The company also makes the occasional acquisition.

The Rural Funds share price has dropped more than 20% since the beginning of 2022, so the guided distribution for FY23 amounts to a 5% yield from the ASX dividend share.

GQG Partners Inc (ASX: GQG)

I think that GQG is one of the most promising fund managers on the ASX. It offers a number of investment strategies including global shares, US shares, and dividend income. The fund manager is geographically expanding, which opens up more growth avenues.

A key investment focus for the GQG team is "forward-looking quality". It aims to identify ongoing competitive advantages so that it can gain clarity on the durability of future earnings. It also looks to invest for at least five years.

During FY22, it was able to demonstrate that its investment strategies had outperformed their respective benchmarks over one, three, and five years.

Its funds under management (FUM) statistic continues to perform well, and the ASX dividend share is still experiencing solid FUM inflows. FUM at 31 October 2022 was US$83.8 billion, up from US$79.2 billion at the end of September.

The fund's own investment team is among the largest investors in GQG shares, so they are very aligned with regular shareholders regarding its success.

GQG looks to pay out approximately 90% of the company's quarterly distributable earnings as a dividend.

Commsec estimates suggest that GQG could pay an annual dividend of 11.6 cents per share in FY23. That translates into a forward dividend yield of 8.1% after a 20%-plus fall of the GQG share price since mid-January.

Motley Fool contributor Tristan Harrison has positions in Rural Funds Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Rural Funds Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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