Income-seeking investors should want to know about the two ASX dividend shares I’m going to write about below. I’m happily buy them with $5,000.
I think that good dividend shares have the potential to provide an attractive mix between dividends and growth.
In my opinion, these two ASX dividend shares are excellent dividend ideas:
WCM Global Growth Ltd (ASX: WQG)
This is a listed investment company (LIC), one of the top ones from my point of view.
There are several things I like to see when looking at potential LIC investments for dividends.
The first is obviously that the LIC has a decent yield. Over the next 12 months, it’s expecting to declare dividends amounting to 5.75 cents per share. That’s a yield of 3.5%, or 5% including franking credits.
I like to understand how an investment manager invests. WCM looks to invest in businesses with expanding economic moats, or strengthening competitive advantages. It also looks for cultures that facilitate and encourage the growth of that economic moat.
Next, good net returns is another factor. Gross returns and management costs are both important, but it’s the net return that is the most important figure. Some managers are worth their fees, and some investments aren’t hugely compelling just because they have low fees. Since it started in June 2017, the ASX dividend share’s portfolio has produced net returns of 20.6% per year. That’s solid outperformance of the global share benchmark. Though past returns are definitely no guarantee of future results.
LIC net returns can be utilised for paying and growing dividends. If good LICs settle on the right yield, it can pay dividends and grow the share price at a good pace. WCM Global Growth has outlined it has a progressive dividend policy. It is planning to grow its half-yearly dividend from 2 cents per share to 3 cents per share. That’s a 50% increase in less than 2 years.
Finally, I want to see the LIC is trading at good value. WCM Global Growth regularly releases information about what its underlying value is – the net tangible assets (NTA) per share. The latest NTA was $1.93, so the share price is at a 14% discount to this.
I think this LIC ticks all the ASX dividend share boxes.
APA Group (ASX: APA)
APA Group is one of the largest ASX dividend shares that I’m interested in.
Businesses need money/profit to pay for their dividends or distributions.
APA generates a lot of cashflow from its gas assets including energy generation and storage. By far the most important asset it has is the national gas pipeline around Australia. It delivers approximately half of the country’s natural gas usage.
In the medium-term, I think that APA can continue to generate good cashflow and paying distributions by transporting gas around the country.
APA currently has a FY22 projected distribution yield of 5.8%. It has increased its distribution every year for the last decade and a half.
Then, in the ultra-long-term, I think that the business has a number of diversification options. For one, its pipelines could be converted to partly or completely transport hydrogen. But I’m not pipeline expert, so I’m not sure how easy that it would be.
APA also has its eye on the vast energy transition opportunities in both Australia and the USA.
Not too long ago, it gave a presentation that included the reference to significant growth opportunities in renewables and firming, electrification and hydrogen infrastructure.
In Australia to 2040, it thinks there will be more than $40 billion of opportunities relating to renewables, firming & storage investment and more than $20 billion in electrification (mostly transmission).
In the USA to 2040, there could be US$1.6 trillion of renewable and firming opportunities, with another US$1 trillion of electrification.
On top of that, the hydrogen economy could need up to US$11 trillion of investments worldwide to 2050.
