I’m always on the lookout for high-quality ASX dividend shares. December 2021 could be the perfect time to look at two of my favourites.
I am a big believer that investors looking at ASX dividend shares for income should predominately consider ones that are reliable and have an intention of growing that dividend for shareholders. Investors are most likely to depend on investment income in a recession, which is exactly when some unreliable businesses may be cutting their dividend payments.
At the current prices, I think these two look very attractive:
WCM Global Growth Ltd (ASX: WQG)
In my opinion, this is one of the most compelling listed investment companies (LICs) on the ASX. This LIC invests in global shares for investors, so it’s very useful to get global diversification. But I think it offers a lot more than just diversification.
The WCM Global Growth portfolio is always focused on quality businesses that have good growth prospects. There are two things that the WCM investment team look for. First, a competitive advantage/economic moat that is growing. The direction of the economic moat is more important that the strength/size of the competitive advantage itself for WCM. I think that’s a good method of finding businesses that are growing profit and hopefully the share price.
Secondly, WCM also aims to find businesses that have a very good culture that enables and promotes the strengthening of that economic moat. A business that is focused and set up on improvement is more likely to achieve that goal.
In terms of the dividend, WCM Global Growth has committed to a growing dividend. The ASX dividend share’s board has announced the intention to grow the half-yearly dividend from 2 cents per share to 3 cents per share over the next couple of results – that’s a 50% increase. An annualised dividend of 6 cents per share translates to a dividend yield of 5.1% including the franking credits.
The investment performance has been very good – it’s made net returns of over 20% per year over the last few years, though of course past performance is no guarantee of future performance.
I think the current valuation looks good too. Every week WCM releases its weekly net tangible assets (NTA), which tells investors how much underlying value there is within each share. At 26 November 2021, the LIC had a pre-tax NTA of $1.912 per share – so the shares are at a 12% discount to this. A double digit discount is good in my opinion.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
I’ve written about WHSP a number of times as to why it’s a high quality ASX dividend share.
One of the key reasons to like it is that it’s the dividend growth champion on the ASX, having increased its dividend payment to shareholders every year since 2000.
However, the dividend is on a steady growth path, so it’s important to get a good price for the diversified investment house. The WHSP share price has declined more than 20% since the end of September 2021. That has boosted the dividend yield (based on the last 12 months) to around 2.9% including the franking credits. But I suspect the forward dividend yield, with an increase of at least $0.02 per share, is more like 3%. That looks good in a world where interest rates are likely to stay fairly low for quite a long time still.
I’m really attracted to how WHSP operates with its reliable cashflow from companies like Brickworks Limited (ASX: BKW), TPG Telecom Ltd (ASX: TPG) and Bki Investment Co Ltd (ASX: BKI) which it then funds a growing dividend as well as re-investing the rest in more opportunities.
The ASX dividend share has made comments about investing into different industries, with defensive and long-term growth characteristics. I think that would improve the business even further.
