Living off dividend income in retirement sounds like a great life to me. But retirees who don't work any more need to look after their portfolio dollars because if something goes really wrong, it's not like they can easily replace that money.
Hence, there are some ASX dividend shares that I would want to buy for retirement because of their passive income, dividend yields and stability. The two dividend shares I'm going to write about below also offer a good rate of growth and a defensive profit profile.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Pattinson is one of the leading ASX dividend shares in my opinion. It has the best dividend growth record on the ASX – it has grown its annual ordinary dividend every year since 2000. It's not guaranteed to keep going, but I think it has a very good chance.
The company operates as an investment house, meaning it invests in other businesses and assets. Some of its longest-held assets have been its best performers because of how small those companies were when Soul Pattinson first invested. I'm talking about Brickworks Limited (ASX: BKW), New Hope Corporation Limited (ASX: NHC) and TPG Telecom Ltd (ASX: TPG).
Some of its other largest investments include Tuas Ltd (ASX: TUA), Apex Healthcare, BHP Group Ltd (ASX: BHP), Macquarie Group Ltd (ASX: MQG), CSL Ltd (ASX: CSL), BKI Investment Company Ltd (ASX: BKI) and Commonwealth Bank of Australia (ASX: CBA).
Other investments include farms, structured yield (credit/bonds), financial service businesses, swimming schools, an electrical and electronic business (called Ampcontrol) and more.
The portfolio pays investment cash flow up to Soul Pattinson, and then the investment house sends a lot of that cash to shareholders. Its investments can grow their own payouts to Soul Pattinson and the investment house can also reinvest retained cash flow into new opportunities.
Based on the last 12 months of dividends, it has a grossed-up dividend yield of 3.7%.
Centuria Industrial REIT (ASX: CIP)
This is a real estate investment trust (REIT) and reportedly Australia's largest domestic pure-play industrial property investment vehicle.
Its properties are located in very useful locations which are close to key infrastructure.
At the end of the FY24 first quarter, the ASX dividend share had a weighted average lease expiry (WALE) of 7.8 years, which means it has a lot of rental income baked in. The business also had a portfolio occupancy rate of 98.6%, showing its portfolio is in high demand.
Its organic rental income growth is also showing signs of industrial property being in high demand. In the FY24 first quarter, it achieved a 48% positive re-leasing spread, meaning the rate for the new rental contracts was 48% higher than the old rental contracts. This level of rental growth can help send distributions higher in future years.
In FY23, its biggest tenants by rental income were Telstra Group Ltd (ASX: TLS), Woolworths Group Ltd (ASX: WOW), Arnotts, AWH, Visy and Fantastic Furniture.
Centuria Industrial REIT is expected to generate funds from operations (FFO), or net rental profit, of 17 cents per security and pay a distribution per security of 16 cents for FY24. This would suggest a forecast forward distribution yield of 5%.
