If you’re looking for reliable dividend income there are still plenty of ASX dividend shares that fit the description. Here’s why I think it’s worth putting at shares of Medibank Private Ltd (ASX: MPL), Macquarie Group Ltd (ASX: MQG) and AGL Energy Limited (ASX: AGL) on your watchlist.
Why Dividend Shares?
One of the best things about investing in the Australian share market is the ability to generate long-term dividend income. If you find the right company, you’ll end up with dividends that increase every year and a reliable, growing income stream.
What separates Australian companies from others 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.
Here’s why I think Medibank, Macquarie and AGL are worth considering…
1. Medibank Private Ltd
Medibank is the largest listed private health insurer in Australia with its Medibank and AHM brands. It has been operating for over 40 years and has around 1.8 million policyholders & 3.7 million customers. The company is headquartered in Melbourne.
Medibank makes the list for a number of reasons. First, the current trailing dividend yield is a healthy 3.85%. Second, Medibank dividends are fully franked, meaning the gross dividend yield (including the effect of franking credits) is more like 5.5% per year.
Finally, Medibank has been consistently increasing its dividend for a number of years. In fact, dividends have nearly tripled since 2015 (5.3 cents per share to 15.6 cents per share).
2. Macquarie Group Ltd
Macquarie Group is Australia’s largest investment bank with operations spread throughout North America, Europe, Middle East, Asia and Australia. Unlike a traditional ‘retail’ bank, like most investment banks Macquarie makes a large chunk of its profit by operating in the investment markets and managing ‘assets’ for individuals and organisations. As of 2018, Macquarie had reported a profit for 49 years in a row.
There are plenty of reasons I like Macquarie shares, one being the 4.25% trailing dividend yield. Macquarie dividends are partially franked (45%) and the company provides another example of consistent dividend growth.
Macquarie has increased its dividend every year since FY12, and the dividends have grown at such a rate that the final dividend for FY19 was by itself the same size as the full-year dividend in FY15.
3. AGL Energy Limited
AGL is one of Australia’s largest electricity generation portfolio owners and operators and the largest ASX-listed investor in renewable energy. As of 2018, AGL had more than 3.6 million customer accounts.
AGL is another company that has been reasonably consistent with dividends, increasing its dividend every year since FY15. With a trailing dividend yield of 6.03% and franking at 80%, the grossed-up dividend yield is around 8%.
Buy, Hold Or Sell?
You may have noticed some similarities between the three companies. All three are among the top companies in their respective industries, and they all have some form of competitive advantage. This is the key when looking for a good dividend share because the competitive advantage will allow the company to continue increasing profits and raising dividends over time.
I couldn’t say whether I’d buy Medibank, Macquarie and AGL at today’s prices but they are certainly three companies worth considering if you’re looking for reliable income.
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Disclosure: At the time of publishing, Max does not have a financial interest in any of the companies mentioned.