ASX investors eager to get some dividend income in their life can chuck shares of Flight Centre Travel Group Ltd (ASX: FLT), APA Group (ASX: APA) and Westpac Banking Corp (ASX: WBC) on their watchlist.
Why bother with these three shares?
For starters, shares in each company currently trade with a generous trailing/historical dividend yield:
- APA Group shares: ~3% partially franked
- Flight Centre shares: ~4% fully franked
- Westpac shares: ~6% fully franked
Are Westpac, Flight Centre & APA Shares Too Good?
One of the best things about investing on the Australian share market is the ability to generate long-term dividend income. What’s more, often, large Australian tax-paying companies pay their 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. In the following Rask Finance video, I explain how franking credits work in more detail.
If you like the video, why not subscribe to our YouTube channel for the latest ASX analysis, interviews and education – it’s free!
Here are three ASX income shares to put on your watchlist today…
1. Flight Centre Travel Group Ltd
Flight Centre is one of the world’s largest travel agencies and has company-owned operations in more than 23 countries, while their corporate travel management network spans more than 90 countries. The Group employs more than 19,000 people and owns 2,800 businesses.
What most consumers — and some investors — still don’t know is Flight Centre is an international business with a strong business-to-business offering.
In addition to its global exposure, I also like that Flight Centre has a strong balance sheet and is run by a capable founder and CEO in Graham Turner. The key question for Flight Centre investors is how will the company fare if consumer confidence and under-employment figures continue to show weakness here in Australia? The answer to which is something I’m working on.
2. APA Group
APA Group listed on the ASX in 2000 with just six employees and has gone on to become one of Australia’s leading energy infrastructure businesses. Today, APA has 1,800 employees, 15,400km of pipelines and a 28,900km distribution network. APA is among the largest companies on the ASX with a market capitalisation of over $10 billion.
Having ownership of unique pipeline networks and energy facilities offers APA a very strong competitive advantage or ‘moat
‘. Meaning, over time, APA should be able to raise prices and throughput on the network and its customers will have to foot the bill because they have no alternative. I reckon this should help APA earn above average rates of return on invested capital (ROIC).
3. Westpac Banking Corp
Westpac Banking Corporation, more commonly known as Westpac, is one of Australia’s ‘Big Four’ banks and a financial-services provider headquartered in Sydney. It is one of Australia’s largest lenders to homeowners, investors, individuals (via credit cards and personal loans) and business.
In recent years Westpac has had a tough time shaking off concerns about its excessive exposure to interest-only mortgages.
As Rask Media Jaz Harrison reported in August, Westpac said its loans that had ‘defaulted but were not yet impaired’ increased 12.8% in the most recent quarter to $5.1 billion. Impaired loans also increased by 7% over the quarter to $1.87 billion. That’s concerning news and in my view is a genuine reason to avoid owning its shares for a little while yet.
Buy, Hold Or Sell?
We’ve got one of these three ASX shares on Rask Invest’s watchlist but none of them are in our model portfolio.
If you forced me to pick one share to buy today I’d go with Flight Centre shares because it’s founder-run, cashed-up and has plenty of overseas exposure. Westpac is the one I’m most concerned about — and have been so for a few years now.
The key takeaway from this article is that I think it may pay to go with the company offering a lower trailing dividend yield and better growth prospects rather than blindly chasing the best dividend stocks of yesterday.
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Disclosure: At the time of publishing, Owen does not have a financial interest in any of the companies mentioned.
