ASX dividend shares are wonderful in my opinion. They could be the antidote to the non-existent interest income we’re seeing right now from interest-related investments like bonds.
Dividends take the guesswork out of investing
ASX dividend shares can sometimes be as volatile as normal shares.
It’s hard to say what share prices will do over the short-term or even the medium-term. That’s pretty tough if you are relying on making capital gains for your returns.
But dividends are usually much more consistent. The board of directors decide what the level of dividend will be each year after taking into account a number of factors.
If you just focus on the dividends then you might be able to handle the volatility of the share market better because, it’s just a temporary noise in terms of the whole market.
Good dividend yields
Each ASX dividend share has a different yield depending on how much of their profit they pay out and how expensive the share price is.
There are some businesses that have lower but consistently growing yields like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), MFF Capital Investments Ltd (ASX: MFF) and Brickworks Limited (ASX: BKW).
There are also some other ASX dividend shares that have higher yields like WAM Microcap Limited (ASX: WMI), Future Generation Investment Company Ltd (ASX: FGX) and Charter Hall Long WALE REIT (ASX: CLW).
Franking credits
A unique benefit of Australian dividend shares is that the taxation systems means that Aussies who receive fully franked dividends from companies get their yields topped up by franking credits. It’s basically a refund of the tax paid by the company, allocated to Australian tax residents. It either reduces the taxes owed or can result in a refund on your tax return. Normally, the franking credit rate is 30%, so a $7 fully franked dividend becomes a $10 dividend including the franking credits.
Dividends and profit re-investment
Many ASX dividend shares have a healthy approach when it comes to dividend payout ratios.
When a business makes profit, if it doesn’t pay out 100% of the profit then that retained amount can be re-invested back into the business for more growth, more profit and higher dividends in the future.
Business profits can be used for both paying a dividend and funding growth.
Summary thoughts about ASX dividend shares
I think ASX dividend shares are a great way to boost income whilst also benefiting from long-term capital growth.
At the moment my preferred picks would be MFF Capital and then perhaps Brickworks if the construction recovery can be sustained. Though it’s hard to look past WHSP as a key long term idea.
