The rising cost of living is taking its pound of flesh from the hip pockets of Aussies. Inflation is a pernicious beast. This is especially true if those hard-earned dollars are left in cash. I'd fight the costly scourge by finding quality ASX shares to buy instead.
Today's monthly inflation print shows rising costs have stripped 3.4% of our purchasing power when annualised. The number was below expectations of 3.5%. However, it is still above the 2% to 3% target band set by the Reserve Bank of Australia.
Fortunately, my top income-focused investments all pay a dividend yield greater than this, leaving capital appreciating as the cream on top.
ASX shares I'd buy to generate income
An attractive trait of ASX dividend shares is their ability to provide money without selling the investment. A portion of company profits gets paid out while the invested capital keeps chugging along untouched — providing for the present and (hopefully) the future.
It's an appealing proposition. However, it's important to prioritise the company's quality, not just those (at times) sugary dividends. High yields can be sweet… but sometimes they can lack substance.
That's why I'd select the following three companies as quality, dividend-paying ASX shares to buy.
Sticky income source: Raise your hand if you've moved house, thrown some things into a storage unit, and long forgotten about it. Like a gym membership, the hassle of sorting out the matter can feel more costly than the ongoing fee — leading to months, sometimes years, of payments through sheer laziness.
Indeed, storage can be a beautiful business — simple and often predictable. That's why I'd choose National Storage REIT (ASX: NSR), one of the largest self-storage providers in Australia and New Zealand, for added income.
Currently, the company offers a dividend yield of 4.6%, outpacing inflation by 1.2%. A $10,000 investment in National Storage a year ago would have paid $460 in 12 months.
Low-cost business: The next ASX share to buy on my list for income is a low-cost business. As I see it, the less money spent on operations, the more dividends can be paid to shareholders. Hence, resource royalty company Deterra Royalties Ltd (ASX: DRR) is a hard one to skip, in my opinion.
Collecting royalties paid on BHP's Mining Area C iron ore mine, Deterra raked in $251.8 million in revenue over the last year. Nearly 67% of that revenue translated to net profits after tax (NPAT), with 100% of those earnings paid out in dividends.
Today, Deterra's dividend yield is 6.3%, surpassing inflation by 2.9%. A $10,000 investment in Deterra Royalties a year ago would have amounted to $630 in 12 months.
Inflation-protected revenue: What about an ASX share to buy that can raise its revenue alongside inflation?
A decent dividend yield now is good, but if the company cannot increase the price of its products or services with inflation, those dividends could soon dwindle. That's why NIB Holdings Limited (ASX: NHF) makes my top three.
Health insurance prices are going up across all providers. Many Australians who pay for health insurance consider it a necessity, cutting back elsewhere if needed to maintain coverage. This helps NIB to grow profits and dividends in line with (or above) inflation.
The dividend yield on NIB shares is 3.9%, a smaller 0.5% above the current inflation rate. A $10,000 investment in NIB a year ago would have paid out $390 worth of income.
