You don’t need to buy the banks or speculative small-caps to get a big dividend yield. Here’s why I think it’s worth looking at shares of Coca-Cola Amatil Ltd (ASX: CCL), Sydney Airport Holdings Pty Ltd (ASX: SYD) and IOOF Holdings Limited (ASX: IFL).
Are ASX Income Shares Worth The Risk?
One of the best things about investing in the Australian share market is the ability to generate long-term dividend income. Sometimes, these companies pay their dividends half-yearly or every six months (known as the interim and final dividends), or just one per year.
What makes Australian dividends so special is that Aussie companies often pay dividends with something called ‘franking credits’. Franking credits are like tax credits stored at the tax office (ATO) until you file your tax returns and claim them. The following Rask Finance video explains franking credits in more detail.
While these three companies don’t have the highest dividend yields, I’d much rather sacrifice one or two percent to get something stable. Here are three ideas…
1. Coca-Cola Amatil Ltd
Coca-Cola Amatil is the Australian distributor and rights holder to the famous Coca-Cola brand (which is owned by the US parent Coca-Cola Company). Coca-Cola Amatil started life in 1904 as British Tobacco Company. The ‘Amatil’ in its name came in 1977 when it was renamed as Allied Manufacturing and Trade Industries Limited (AMATIL).
Coca-Cola Amatil has had a great run this year, up 35% since January. The recent half-year FY19 results showed revenue growth of 5.2% and statutory net profit after tax (NPAT) growth of 6.3%.
Coca-Cola Amatil has consistently grown its dividends for several years now and currently offers a trailing dividend yield of 4.23% unfranked. That might sound lower than you were expecting, but pair that with capital growth and you could have yourself a nice total return.
2. Sydney Airport Holdings
Sydney Airport Holdings is the company that operates the Kingsford Smith Airport, it currently has a 99-year lease on the airport but it 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.
Syndey Aiport shares have been falling over the last month on news of lower traffic which is certainly something that investors should watch closely. With a second airport set to open in Sydney by 2026, low traffic numbers may become a recurring issue.
However, for the last few years, Sydney Airport has been quickly raising its dividend and its share price, and the current trailing dividend yield is 4.76% unfranked.
3. IOOF Holdings Limited
IOOF Holdings is a diversified financial business that offers a variety of services to clients including financial advice, platform management & administration, investment management, and trustee services. IOOF has been operating since 1846 and is now one of the largest financial services industry businesses.
IOOF shares are up more than 13% year-to-date but it hasn’t been a clear run. IOOF’s FY19 profit was impacted by remediation costs following the Royal Commission, but funds under management, administration and advice (FUMA) increased by 18.7% which is a positive sign. IOOF did have to cut its dividend but it still maintains a fully-franked trailing dividend yield of 6.66%.
Buy, Hold Or Sell?
I’m not suggesting these companies are necessarily worth buying today but they could be ones to consider for a long-term investment. Sydney Airport arguably faces the largest headwinds, while IOOF could see a return to strong performance with the worst of the Royal Commission over if it can avoid cutting dividends again.
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Disclosure: At the time of publishing, Max does not have a financial interest in any of the companies mentioned.