In our current low rate environment, investors are scrambling to find quality dividend shares to fill the income void. Let’s take a look at two dividend shares you may not have considered.
But, firstly…
Why Invest In ASX Dividend Shares?
One of the best things about investing in the share market is the ability to generate long-term dividend income. What makes Australian dividends so special is that Australian companies often pay dividends with something called franking credits. These credits are like tax credits stored at the ATO until you file your tax return and claim them.
The Rask Finance video below explains franking credits in more detail:
1. Ausnet Services Ltd (ASX: AST)
AusNet is an Australian energy company that is listed on both the ASX and the Singapore Stock Exchange. The company’s network includes over 11,400km of gas mains, 13,000 electricity transmission towers, 6,700km of power lines, and around 383,000 power poles.
AusNet also operates one of five electricity distribution networks and one of three gas distribution networks in Victoria. The company earns highly regulated profits, with energy price movements set by the Australian Energy Regulator (ERA).
AusNet’s Victorian assets are worth $9 billion alone and generate approximately 85% of its revenue, which is extremely stable and reliable due to the highly regulated environment in which the company operates.
AusNet consistently produces strong cash flows, which supports its impressive 5.4% trailing dividend yield. This makes AusNet a potentially attractive alternative to other dividend favourites such as Commonwealth Bank of Australia (ASX: CBA) and Rio Tinto Limited (ASX: RIO).
2. Iress Ltd (ASX: IRE)
Iress is a technology company that provides software to the financial services industry. Through its global team of 1,950 people, Iress offers software and services for trading and market data, financial advice, investment management, mortgages, superannuation, data intelligence, and life and pensions.
Iress has the benefit of sticky customers, with recurring revenue making up roughly 90% of all group revenue. Iress’ software is often integral to the day-to-day operations of its clients, meaning that replacing the software is often a costly exercise for clients.
However, this can also work against Iress, as getting prospective clients to cross over to its software from a competitor can be difficult for precisely the same reason.
Iress’ Xplan product is popular with financial planning firms as it allows fianncial planners to better organise their client files. The product has been a strong source of earnings growth for Iress over the last decade.
With a healthy dividend yield of around 4% and earnings growth for FY19 (year ending 30 December 2019) expected to be in the high single digits, the recent pull back in the Iress share price towards $11 may provide a buying opportunity for long-term investors.
Which Shares Would I Choose?
I think both companies are relatively attractive options for a well-diversified portfolio. Both AusNet and Iress offer a defensive income stream, with a high proportion of recurring revenue and respective recent share price falls only serving to make them more attractive going forward.
If I were forced to choose, I’d pick AusNet for its high quality energy assets and its stronger dividend, which is supported by strong cash flows.
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Disclaimer: The author of this article has no financial interest in any of the companies mentioned.
