Good dividend shares should be well-established, safe and reliable. Here’s why I think it’s worth looking at shares of Transurban Group (ASX: TCL), Sydney Airport Holdings Pty Ltd (ASX: SYD) and Cimic Group Ltd (ASX: CIM).
Income Investing
One of the best things about investing in the Australian share market is the ability to generate long-term dividend income.
What makes Australian dividends so special is that Aussie companies sometimes 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:
When you buy dividend shares, you should always be looking for reliable, well-established companies. So, here are three blue-chip industrials worth considering…
1. Transurban Group
Transurban owns and operates 15 toll roads in Melbourne, Sydney, and the greater Washington area. Revenue growth is derived from traffic growth and its very own rivers of gold: inflation-protected toll prices.
CityLink in Melbourne is the company’s biggest asset. In 2018, this accounted for approximately 32% of Transurban’s total toll revenue – working out to be about twice the size of the roads in Brisbane.
This inflation-protected revenue makes for a great dividend investment and it has allowed Transurban to increase its dividend very consistently over the last few years. While the dividends are only partially franked (around 6.5%), the trailing dividend yield is a healthy 4% right now. Coupled with that is a decent capital gain as well, with Transurban shares up 26% year-to-date.
2. Sydney Airport Holdings Pty Ltd
Sydney Airport Holdings is the company that operates the Kingsford Smith Airport. It currently has a 99-year lease on the airport 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.
Sydney Airport, unfortunately, does not offer franking credits with its dividends but it is hard to leave off this list. Sydney Airport has increased its dividend every year since FY13, often by a reasonable margin. The current trailing dividend yield is 4.69%, but it used to be higher. Despite the increasing dividends, the dividend yield has been falling because the share price is up around 23.5% year-to-date.
The biggest risk going forward for Sydney Airport is likely the new Western Sydney Airport under construction, 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 rising dividends.
3. Cimic Group Ltd
Cimic Group was formerly called Leighton Holdings. The company changed its name shortly after some bribery scandals emerged in the news and it was acquired by its majority shareholder, Spanish firm Grupo ACS. On a more positive note, Cimic is today a major international construction and mining contractor with brands like UGL, CPB Contractors, Thiess, Broad and Sedgman under its banner.
As promised, here’s an idea that takes full advantage of franking credits. Cimic dividends are 100% franked and the current trailing dividend yield is 4.84%. 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 6.9%.
A word of warning: the Cimic share price has been declining and is down around 24% year-to-date. However, Cimic has announced several large contracts recently and the dividend was still increased in FY19. While I think Cimic may present reasonable value today, I would proceed with caution on this one.
If you’re looking for more proven, dividend-paying shares, the free report below has three more ideas you could implement.
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Disclosure: At the time of publishing, Max does not have a financial interest in any of the companies mentioned.
