Why I think these are the best dividend stocks in Australia right now

I like these shares for their dependable cash flow.

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I believe some of the world's best dividend stocks are on the ASX.

These are companies with good long-term dividend histories. These businesses have underlined their credentials by building on their dividend record every year.

The dividend stocks I'm going to write about are three of my favourite options for passive income. Not due to a huge dividend yield but because of their long-term operational growth and compounding power.

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

I'm going to talk about both of these two stocks together because they have a cross-holding. This means Brickworks owns a significant chunk of Soul Pattinson shares, and Soul Pattinson owns a substantial amount of Brickworks shares.

Brickworks is best known as a building products business. It's the leading brickmaker in Australia. I like Brickworks' exposure to Soul Pattinson, and I'll get to why Soul Pattinson is a good business in a moment.

The main thing that attracts me to Brickworks is its large industrial property portfolio. It has a 50% share of a property trust along with Goodman Group (ASX: GMG). The trust is building large warehouses on excess Brickworks operational land. These developments are unlocking large rental earnings growth and increasing the value of the land as well.

Brickworks still has a pipeline of identified estates that can be developed in the next three years, with further projects possible in the years beyond that.

The dividends from Soul Pattinson and its properties are powering Brickworks' dividend higher. It has grown or maintained its dividend every year for almost 50 years in a row.

Using the FY23 payout, Brickworks has a grossed-up dividend yield of 3.6%.

Soul Pattinson describes itself as an investment house that's invested across a variety of sectors. These include telecommunications, resources, swimming schools, financial services, agriculture, bonds/credit, property, electrical parts and so on.

It has a goal to increase its dividend every year for shareholders. The ASX dividend share is on a consecutive annual dividend growth streak that stretches back to 2000. It's the longest record on the ASX.

Soul Pattinson pays its growing dividend from the investment income it receives from its portfolio. It re-invests the leftover cash flow into more opportunities to help future returns. The dividend stock's portfolio is largely focused on defensive sectors that can generate solid cash flow/earnings.

Wesfarmers Ltd (ASX: WES)

Wesfarmers is the name behind a number of high-quality Australian brands such as Bunnings, Kmart, Officeworks and Wesfarmers chemicals, energy and fertilisers (WesCEF).

Wesfarmers wants to deliver good shareholder returns, partly by delivering a larger dividend over time and focusing on prudent management of shareholder capital.

The ASX dividend stock is steadily growing its existing businesses, making useful bolt-on acquisitions and expanding into new sectors such as healthcare.

FY20 was the first 'normal' year after the divestment of Coles Group Ltd (ASX: COL), and Wesfarmers has grown its annual dividend per share each year since then. The FY23 grossed-up dividend yield is 5.1%.

Foolish takeaway

What I particularly like about both Wesfarmers and Soul Pattinson is that they have the freedom to invest in new sectors which could diversify, protect and improve the earnings outlook. In 10 or 20 years, I believe both of these stocks will continue to be good dividend options.

Motley Fool contributor Tristan Harrison has positions in Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, Goodman Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Brickworks, Coles Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has recommended Goodman 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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