Why Invest In ASX Dividend Shares?
In our current environment of near rock bottom interest rates, term deposits are unlikely to provide you with the income you may require. Australian shares can be one of the best ways to invest money for long-run growth, while also receiving some return along the way in the form of dividends.
Over the past 30 years, as interest rates have collapsed from 15% to 1%, Australian shareholders in companies like Commonwealth Bank of Australia (ASX: CBA) and Telstra Corporation Ltd (ASX: TLS) have reaped the benefits of generous fully franked dividends.
For those interested, the Rask Finance page here explains franking credits in detail.
Without further ado, here are three blue-chip ASX industrials that could be worthy additions to a stable dividend portfolio.
1. Sydney Airport Holdings
Sydney Airport Holdings operates the Kingsford Smith Airport on a 99-year lease that will revert back to government ownership at the end of this century. According to Sydney Airport, it generates $30.8 billion in economic activity a year, which is equivalent to 6.4% of the NSW economy.
Impressively, Sydney Airport has increased its dividend every year since FY13, often by a reasonable margin. Despite the increasing dividends, Sydney Airport’s dividend yield has been falling because the share price is up around 22% year-to-date. This places Sydney Airport shares on a trailing dividend yield of 4.7%.
One of the biggest risks for Sydney Airport is likely the new Western Sydney Airport, which is due to be completed by 2026. If this airport takes traffic from Sydney Airport, it could also take profits and put a stop to the pattern of rising dividends.
2. Cimic Group
Cimic Group is an international contractor with operations in telecommunications, engineering, property, mining and environmental services industries. Cimic operates multiple brands such as UGL, CPB Contractors, Thiess, Broad and Sedgman.
Cimic dividends are fully-franked and shares are currently changing hands at a trailing dividend yield of 4.8%. If you can take full advantage of the franking credits (which depends on your personal tax circumstances), then the gross dividend yield would be more like 6.8%.
The Cimic share price has been declining and is down around 26% year-to-date. However, Cimic has announced several large contracts recently and the company still increased its dividend in FY19. While I think Cimic may present reasonable value today, I would proceed with caution on this one.
3. Transurban Group
Transurban owns and operates 15 toll roads in Melbourne, Sydney, Brisbane, and the greater Washington area in the US. CityLink in Melbourne is the company’s biggest asset, which accounts for nearly one-third of all toll revenue.
Revenue growth is derived from traffic growth and the company’s very own rivers of gold: inflation-protected toll prices. This inflation-protected revenue makes for a great dividend investment and it has allowed Transurban to increase its dividend consistently over the last few years.
While Transurban’s dividends are only partially franked (around 6.5%), the trailing dividend yield is a healthy ~4.1% right now. Coupled with that is a notable capital gain as well, with the Transurban share price up 26% year-to-date.
Disclosure: At the time of writing, Max has no financial interest in any of the companies mentioned.