It's getting harder to find good levels of income these days. ASX dividend shares could be the answer.
However, just because something has a seemingly big dividend yield doesn't mean it's automatically a good choice. Just look at Commonwealth Bank of Australia (ASX: CBA) – its final dividend was cut heavily and the next interim dividend could be cut too.
I don't think there are many ASX blue chips with large yields that could solid dividend payers during this period. Wesfarmers Ltd (ASX: WES) and APA Group (ASX: APA) would be two blue chips I'd be happy to rely on for income. The problem is that their starting yields aren't that high.
These ASX dividend shares have big yields and I think the dividends will grow over time:
Naos Emerging Opportunities Company Ltd (ASX: NCC)
This business is a listed investment company (LIC) which invests in small ASX shares with market capitalisations under $250 million. This is the small end of the ASX.
One of the main benefits of LICs is that fund managers can make investment returns – largely capital gains – and then it can steadily pay out those gains as a smoothed dividend.
The Naos LIC has done very well with its dividend. It started paying a dividend in FY13 and it has grown or maintained its dividend every year since.
At the end of July 2020 the ASX dividend share offered a grossed-up dividend yield of 12.3%. At the current Naos Emerging Opportunities Company share price it's trading at a 13.5% discount to its pre-tax net tangible assets (NTA) per share. That means you can buy $1 for shares for $0.875
At the end of last month it had nine positions in its portfolio., so it's a high conviction portfolio. But it offers diversification as well.
Vitalharvest Freehold Trust (ASX: VTH)
Vitalharvest is a real estate investment trust (REIT) which owns agricultural farmland. Specifically, it owns berry and citrus fruit farms. At the moment all of its farms are leased to Costa Group Holdings Ltd (ASX: CGC).
The ASX dividend share generates rental income in two ways. It receives a fixed rental income from Costa and it also has a profit share agreement – it receives 25% of the profit from the farms.
Costa's earnings have been troubled over the past couple of years because of the drought, crumbly berries and fruit flies at the citrus farms. Despite all of those issues, Vitalharvest's distribution still amounts to a 6% yield today.
If profitability per share returned to the 2019 levels then Vitalharvest's distribution yield could be 7.1%.
The ASX dividend share has recently switched managers. The new one will be looking for acquisitions to increase diversification and boost the rental profit (and the distribution). The new targets may offer a more stable income as well.
PM Capital Global Opportunities Fund Ltd (ASX: PGF)
PM Capital Global Opportunities Fund is another LIC. This one targets overseas shares.
The ASX dividend share has a current grossed-up dividend yield of 6.5%. The LIC just increased its final dividend by 25% to 2.5 cents per share. If it pays another 2.5 cents per share dividend in six months then it will have a grossed-up dividend yield of 7.25% today.
Some of the shares that it currently owns includes Visa, Siemens, Bank of America, Freeport-McMoRan, Oracle, KKR & Co and Alphabet (Google).
It has increased its dividend each year since 2016 and it could keep growing its dividend over the long-term if its investments turn out well.
At the current PM Capital Global Opportunities Fund share price it's trading at a 16.5% discount to the NTA at 7 August 2020.
Foolish takeaway
Each of these ASX dividend shares offer something different for income investors. The Naos LIC has a huge yield. Vitalharvest offers alternative income with its food-related properties. PM Capital Global Opportunities Fund has a steadily-growing dividend with good diversification.
