Australian stocks can be a great source of passive income and deliver pleasing dividend yields. But dividends are not guaranteed in the way that term deposit interest is.
Payouts are decided by the business' leadership, but the economy, business performance, and competition can change the landscape for those payments.
There are a few businesses that have a history of delivering regular dividend growth, partly because of their type of business. For example, I'd expect miners and discretionary retailers to see profits (and the dividend) decline every so often because customer demand can change.
For safe dividends, I'd want to focus on businesses in relatively defensive sectors. With that in mind, I think the two Australian stocks below fit the bill.
Washington H. Soul Pattinson and Co Ltd (ASX: SOL)
This is an investment business that has been operating for over 120 years, though it just operated as a pharmacy business for the first few decades of its life.
It now has a very diversified portfolio after investing in a number of businesses, including TPG Telecom Ltd (ASX: TPG), Tuas Ltd (ASX: TUA), Brickworks Ltd (ASX: BKW), New Hope Corporation Ltd (ASX: NHC), BHP Group Ltd (ASX: BHP), Macquarie Group Ltd (ASX: MQG), Wesfarmers Ltd (ASX: WES), Commonwealth Bank of Australia (ASX: CBA), and Goodman Group (ASX: GMG).
It also has private businesses in areas like swimming schools, agriculture, electrification, and private credit.
The Australian stock has designed its portfolio to be focused on assets that can generate cash flows through all economic environments. The diversified nature of its portfolio is useful because the cash flow is coming from a variety of sources, so it's likely that if there is weakness for one sector in its portfolio, it only impacts a part of Soul Patts' earnings, rather than the whole earnings base.
Impressively, the company has been able to grow its annual ordinary dividend every year since 2000, which is the longest growth record on the ASX.
It currently has a grossed-up dividend yield of 3.5%, including franking credits.
APA Group (ASX: APA)
APA is an energy infrastructure business. Its key asset is a gas pipeline network across the country, connecting sources of supply to where it's needed. The business transports half of the country's gas usage.
The Australian stock's asset base also includes gas processing, gas storage, gas-powered energy generation, wind farms, solar farms, batteries, and electricity transmission.
Households and businesses continue using energy, regardless of whether GDP is booming or not. On top of that, APA's revenue growth is linked to inflation, so that's providing regular growth for the business and has helped offset the higher cost of debt.
Impressively, the Australian stock has grown its distribution every year for 20 years in a row, which is the second-longest growth record on the ASX.
I believe the business can continue its distribution growth for the foreseeable future thanks to the revenue growth I mentioned above and the occasional acquisition.
It's expecting to pay a distribution that equates to a dividend yield of 6.9% in FY25.
