3 must-have ASX income shares for your portfolio

I think there are certain group of ASX income shares that are worth being in every dividend-seeker’s portfolio.

There were a couple of names that I nearly included like Rural Funds Group (ASX: RFF) and WAM Microcap Limited (ASX: WMI). However, their share prices have run hard over the past six months, so there may be some other names that I’d want to buy first.

It’s very hard to make any money from keeping cash in the bank at the moment. But I don’t think ASX blue chips are the safest place to generate income. I think these ASX income shares are worth buying for dividends:

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

I think Soul Patts is the best ASX dividend share in Australia. It has been listed since 1903. 

It has a diversified portfolio of different assets because it’s an investment house. It can invest anywhere and shift its portfolio to other growing areas over time. Some of the ASX shares that it owns a sizeable chunk of include: TPG Telecom Ltd (ASX: TPG), Australian Pharmaceutical Industries Ltd (ASX: API), New Hope Corporation Limited (ASX: NHC), Clover Corporation Limited (ASX: CLV), Bki Investment Co Ltd (ASX: BKI), Milton Corporation Limited (ASX: MLT), Palla Pharma Ltd (ASX: PAL) and Tuas Ltd (ASX: TUA).

The ASX income share also owns plenty of unlisted businesses in various sectors like swimming schools, resources, agriculture and financial services.

It receives a strong level of investment income from its portfolio each year. After paying for expenses, Soul Patts then pays out some of the remaining net cashflow as a growing dividend.

Soul Patts has actually increased its dividend every year since 2000 (including through the worst of COVID-19) which is the best record on the ASX. I like the defensive nature of Soul Patts, but it has also managed to outperform the index in the short-term and the long-term.

At the current Soul Patts share price it offers a grossed-up dividend yield of 3.3%.

Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is another quality ASX income share.

It’s a listed investment company (LIC) which has investments across around 20 top fund managers that invest in ASX shares – those managers work for free so that Future Generation can donate 1% of its net assets to youth charities each year. There are no management fees or performance fees when it comes to Future Generation.

Its gross portfolio has outperformed the S&P/ASX 200 All Ordinaries Accumulation Index over the past month, six months, twelve months, three years, five years and since inception in September 2014. Over the past year Future Generation’s portfolio has outperformed by more than 10%.

The ASX income share can use its investment gains to pay a steadily-growing dividend, which it has done since 2015.

At the current Future Generation share price it offers a trailing grossed-up dividend yield of 6.3%.

Brickworks Limited (ASX: BKW)

Brickworks is primarily known as a building products business in Australia. It sells a variety of products like bricks, paving, masonry, roofing and precast.

It also has a strong market presence in the north east of the US after three targeted acquisitions. It’s now the market leader in places like New York. I think Brickworks is well placed to benefit when the US construction industry returns to normal operations after COVID-19.

Brickworks also has two other assets. It owns around 40% of Soul Patts and it also has a 50% stake of an industrial property trust alongside Goodman Group (ASX: GMG). Goodman is a high quality operator of industrial estates, one of the best in the world. The trust will soon have Amazon as a key tenant at a large distribution warehouse that it’s constructing.  

The building products business hasn’t cut its dividend for over 40 years. That’s very reliable. It’s one of the main reasons why I think Brickworks is must-have ASX income share.

It’s the above two assets’ cashflow which completely fund Brickworks’ dividend, it doesn’t need the building products divisions to do well every single year to keep growing the dividend.

At the current Brickworks share price it offers a grossed-up dividend yield of 4.4%. I think that’s a good starting yield.

More reading

• Why the Soul Patts (ASX:SOL) share price is up 25% in 2 months
• Is it time to go all in on ASX shares?
• 2 ASX shares I plan to hold til I’m 100
• 2 ASX dividend shares raising their dividends like clockwork
• Why Brickworks, Flight Centre, Whitehaven, & Zip shares are dropping lower

Tristan Harrison owns shares of FUTURE GEN FPO, RURALFUNDS STAPLED, WAM MICRO FPO, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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