Why I think these are the best dividend stocks in Australia right now

I like these shares for their dependable cash flow.

| More on:
Three children wearing athletic short and singlets stand side by side on a running track wearing medals around their necks and standing with their hands on their hips.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

I believe some of the world's best dividend stocks are on the ASX.

These are companies with good long-term dividend histories. These businesses have underlined their credentials by building on their dividend record every year.

The dividend stocks I'm going to write about are three of my favourite options for passive income. Not due to a huge dividend yield but because of their long-term operational growth and compounding power.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and Brickworks Limited (ASX: BKW)

I'm going to talk about both of these two stocks together because they have a cross-holding. This means Brickworks owns a significant chunk of Soul Pattinson shares, and Soul Pattinson owns a substantial amount of Brickworks shares.

Brickworks is best known as a building products business. It's the leading brickmaker in Australia. I like Brickworks' exposure to Soul Pattinson, and I'll get to why Soul Pattinson is a good business in a moment.

The main thing that attracts me to Brickworks is its large industrial property portfolio. It has a 50% share of a property trust along with Goodman Group (ASX: GMG). The trust is building large warehouses on excess Brickworks operational land. These developments are unlocking large rental earnings growth and increasing the value of the land as well.

Brickworks still has a pipeline of identified estates that can be developed in the next three years, with further projects possible in the years beyond that.

The dividends from Soul Pattinson and its properties are powering Brickworks' dividend higher. It has grown or maintained its dividend every year for almost 50 years in a row.

Using the FY23 payout, Brickworks has a grossed-up dividend yield of 3.6%.

Soul Pattinson describes itself as an investment house that's invested across a variety of sectors. These include telecommunications, resources, swimming schools, financial services, agriculture, bonds/credit, property, electrical parts and so on.

It has a goal to increase its dividend every year for shareholders. The ASX dividend share is on a consecutive annual dividend growth streak that stretches back to 2000. It's the longest record on the ASX.

Soul Pattinson pays its growing dividend from the investment income it receives from its portfolio. It re-invests the leftover cash flow into more opportunities to help future returns. The dividend stock's portfolio is largely focused on defensive sectors that can generate solid cash flow/earnings.

Wesfarmers Ltd (ASX: WES)

Wesfarmers is the name behind a number of high-quality Australian brands such as Bunnings, Kmart, Officeworks and Wesfarmers chemicals, energy and fertilisers (WesCEF).

Wesfarmers wants to deliver good shareholder returns, partly by delivering a larger dividend over time and focusing on prudent management of shareholder capital.

The ASX dividend stock is steadily growing its existing businesses, making useful bolt-on acquisitions and expanding into new sectors such as healthcare.

FY20 was the first 'normal' year after the divestment of Coles Group Ltd (ASX: COL), and Wesfarmers has grown its annual dividend per share each year since then. The FY23 grossed-up dividend yield is 5.1%.

Foolish takeaway

What I particularly like about both Wesfarmers and Soul Pattinson is that they have the freedom to invest in new sectors which could diversify, protect and improve the earnings outlook. In 10 or 20 years, I believe both of these stocks will continue to be good dividend options.

Motley Fool contributor Tristan Harrison has positions in Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, Goodman Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Brickworks, Coles Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has recommended Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

A man and woman sit next to each other looking at each other and feeling excited and surprised after reading good news about their shares on a laptop.
Dividend Investing

5 fantastic ASX ETFs to buy in June with $10,000

Let's see why these funds could be good picks.

Read more »

Male hands holding Australian dollar banknotes, symbolising dividends.
REITs

2 ASX REITs announcing new dividends today

Money, money, money!

Read more »

A man holds his glasses up to his forehead looking gobsmacked over ASX share price rises
Dividend Investing

These ASX dividend shares could rise 25% to 60%

Brokers expect big returns and great yields from these shares.

Read more »

A couple makes silly chip moustache faces and take a selfie on their phone.
Dividend Investing

Maximising franked dividend income: Here's why I own these 2 ASX shares

I make exceptions for these two income shares.

Read more »

A group of young people smiling and watching TikTok on their mobile phones
Dividend Investing

Buy Telstra, Woolworths, and this ASX dividend stock

Analysts think these stocks could be top picks for income investors.

Read more »

A little girl holds broccoli over her eyes with a big happy smile.
Dividend Investing

1 practically perfect Australian stock down 25% to buy for long-term income

There aren't many quality stocks that are down 25% from their highs.

Read more »

Hand of a woman carrying a bag of money, representing the concept of saving money or earning dividends.
Dividend Investing

2 compelling ASX dividend shares with yields above 6%

These stocks have generous dividend yields.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Dividend Investing

Aiming for rock-solid retirement income? I'd buy these two ASX shares

These stocks are excellent options for consistent payments.

Read more »