Investors who are focusing on income are faced with a unique set of circumstances.
The Reserve Bank of Australia (RBA) cut interest rates again last week by 0.25% to 0.5%. How are savers supposed to live with an interest rate that low? There is also talk that inflation could return because of the supply chain disruption as well as potential quantitative easing (QE), if needed.
Some typical dividend shares may not be as safe as they have been due to potential economic disruptions. I wouldn't say that Commonwealth Bank of Australia (ASX: CBA) or BHP Group Ltd (ASX: BHP) are safe ideas at this stage, even after their falls.
Here are three ideas that I think are very reliable, with decent yields:
Ramsay Health Care Limited (ASX: RHC)
The private hospital operator has seen its share price drop by 16.5% since 21 February 2020, which is fairly close to the overall ASX's drop.
Share price movements should reflect the changing fundamentals of a business. I don't think Ramsay's long-term future has been reduced by 16.5%, though the next 12 months could be quite disrupted.
Elective surgeries may be affected during this time, but if they are then you'd think that demand for Ramsay's beds may be filled with other patients if it actually got that bad. Ramsay has a European arm which will likely be very busy during this coronavirus period.
Ramsay has increased its dividend every year since 2000 and it currently has a grossed-up dividend yield of 3.4%. Almost 3% better than the RBA interest rate!
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts is another business that has grown its dividend every year since 2000.
The great thing about the investment conglomerate is that its portfolio is diversified, so it receives dividends, rent and interest from various sources. One of its biggest positions is telco TPG Telecom Ltd (ASX: TPM). People will need to keep paying their internet and phone bill if they want to keep their data. These dividends can be passed through to Soul Patts.
The company has been going for over 100 years and has survived through the world wars and the various economic collapses, it paid a dividend in every single year. It should be able to ride through these problems too.
It currently has a grossed-up dividend yield of 4.5%.
Rural Funds Group (ASX: RFF)
The farmland property owner has a long weighted average lease expiry (WALE) of more than 11 years. Its rental income is locked in for a long time with large tenants like Olam, JBS, Treasury Wine Estates Ltd (ASX: TWE) and Select Harvests Limited (ASX: SHV).
If those businesses want to keep using the farms they have to keep paying the rent. I think Rural Funds is well-placed with a 100% occupancy rate.
The real estate investment trust (REIT) has predicted that the FY21 distribution will be 11.28 cents, which translates to a distribution yield of 5.8% today.
Foolish takeaway
All three of these businesses have very good income prospects in the short-term and long-term. I'd probably buy Soul Patts out of the three because of its diversification and longevity, though Rural Funds could be a great medium-term choice for income too.
