If I were given $4,000 to invest into ASX dividend shares, I think there are some good ones worth considering.
Dividends can be a great way to benefit from the performance of shares whilst getting paid actual cash for owning a small part of these businesses.
Just because a business pays a dividend doesn’t mean that it’s automatically worth owning. But I think these two are:
MFF Capital Investments Ltd (ASX: MFF)
MFF Capital is a listed investment company (LIC). It’s actually one of the largest with a market capitalisation of $1.6 billion.
One of the attractive things about LICs is that the portfolio manager can choose from a wide range of businesses. It’s not a preset portfolio that follows an index like most exchange-traded funds (ETFs). There’s plenty of positives to index ETFs of course. But I like that the LIC can decide what the best shares to own are.
MFF has a particular advantage in that it’s a globally-focused LIC. It can invest in whatever businesses it wants to. Australia only accounts for 2% of the global share market. There are plenty of other opportunities.
At the moment, in the ASX dividend share’s portfolio are names like Visa, Mastercard, Amazon, Home Depot, Facebook, Alphabet, CVS Health, Bank of America and Microsoft. Those are all the positions each worth more than 3% of the portfolio. Visa and Mastercard combined are just over 29% of the whole portfolio.
MFF Capital has much lower operating costs, in percentage terms, compared to other LICs. That helps net returns over time.
In terms of the dividend, the board are focused on growing the half-yearly dividend to 5 cents per share. The current biannual dividend is 3 cents per share. That means the future fully franked yield will be 3.5% in the next couple of years.
Rural Funds Group (ASX: RFF)
Rural Funds is a farmland real estate investment trust (REIT). That simply means it’s a business that owns farms, and leases them to high quality operators.
If you know your large Australian farming operators, you might have heard of some of the main tenants like Treasury Wine Estates Ltd (ASX: TWE), Select Harvests Limited (ASX: SHV), JBS and Olam.
One of the most attractive things about this ASX dividend share is that it aims to increase the distribution by 4% each year. That’s not a huge a increase, but year after year it beats inflation and compounds nicely into a larger income number.
Rural Funds has a diverse portfolio of farms around the country including cattle, vineyards and almonds.
In FY22, Rural Funds is expecting to pay a distribution of 11.73 cents per unit/share. At the last Rural Funds share price of $2.44, that translates to a forward yield of 4.8%.
I think it could be a good source of defensive income over the medium term.
