Rural Funds and Brickworks are two leading ASX 200 dividend ideas.
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There are some quality S&P/ASX 200 Index (ASX: XJO) shares that might be ideas to think about for dividend income.
It’s pretty tough to find sources of income for capital at the moment because of how low interest rates are right now.
The below two ASX 200 dividend shares could be ones to think about:
Rural Funds Group (ASX: RFF)
Rural Funds is a leading real estate investment trust (REIT) in the agricultural space. It owns a high-quality portfolio of assets that are spread around the country in different states and climactic conditions.
Those farms span the sectors of cattle, almonds, macadamias, vineyards and cropping (sugar and cotton). The properties are predominately leased to large and listed operators such as Treasury Wine Estates Ltd (ASX: TWE), Select Harvests Limited (ASX: SHV), Olam, JBS and Queensland cotton.
The business aims to grow its distribution per investors by 4% per annum, which is materially higher than inflation has been over the last several years. It funds this distribution growth through organic rental growth, productivity investments at the farms and the occasional acquisition.
The ASX 200 share recently announced a $100 million equity raising. This will pay for the development of 1,000 hectares of macadamia orchards, acquiring more cattle properties and the acquisition of up to 8,338ML of water entitlements for $38.4 million which are leased to a private farming company for five years, which will boost its adjusted funds from operations (AFFO – the net rent).
Rural Funds is expecting to pay a distribution of 11.73 cents per unit in FY22. At the current Rural Funds share price, it offers a forecast distribution yield of 4.5%.
Brickworks Limited (ASX: BKW)
Brickworks is another ASX 200 dividend share to think about.
It hasn’t cut its dividend in over forty years, which is a very long record when it comes to ASX companies.
Construction materials can be a cyclical industry. It has a number of different subsidiaries across different products including bricks, paving, masonry, roofing, specialised building systems and precast.
It also has a leading market position in brickmaking in the north east of the US after making a few acquisitions before COVID-19.
But it’s other parts of the business’ cashflow that funds the Brickworks dividend each year.
The ASX 200 dividend share has an ultra-long-term cross-shareholding partnership with Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), the investment conglomerate. Brickworks owns around 40% of Soul Patts.
Soul Patts has a diversified portfolio of different assets. The lion’s share of assets are other ASX businesses like TPG Telecom Ltd (ASX: TPG), Brickworks, New Hope Corporation Limited (ASX: NHC), Tuas Ltd (ASX: TUA), Pengana Capital Group Ltd (ASX: PCG) and Pengana International Equities Ltd (ASX: PIA). It also has investments in private businesses related to agriculture, resources, swimming schools and more.
Soul Patts has been paying Brickworks (and all shareholders) a growing dividend over the last 20 years.
The other part that funds Brickworks’ dividend is its 50% ownership of a quality industrial property trust. That property enterprise is building high-quality buildings that are then leased to really good tenants. Amazon and Coles Group Ltd (ASX: COL) are expected to be two of the newest tenants to move into two huge, high-tech warehouses. Once those warehouses are complete, it’s expected to significantly increase the value and rental income of the trust.
At the current Brickworks share price, it has a trailing grossed-up dividend yield of 3.5%.
Should you invest $1,000 in Rural Funds right now?
Before you consider Rural Funds, you’ll want to hear this.
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*Returns as of May 24th 2021
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Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Brickworks, COLESGROUP DEF SET, RURALFUNDS STAPLED, Treasury Wine Estates Limited, and Washington H. Soul Pattinson and Company Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.