High dividend yields are easier to find after interest rates rise and income shares fall out of favour.
But I think some of those yields are more interesting than others.
For me, the best opportunities are ASX dividend shares with income supported by real assets, long-term contracts, or rental streams with reasonable visibility.
That is why the two shares in this article stand out to me.
Both offer trailing yields above 5%, which is attractive in its own right. But I also like the assets sitting behind those distributions.
APA Group (ASX: APA)
APA is one of the first income shares I would consider buying.
The company owns and operates a large portfolio of energy infrastructure assets, including gas pipelines, electricity transmission, power generation, and energy storage assets.
What appeals to me is the role these assets play in the economy.
Energy infrastructure is not a short-term trend. Businesses, households, and industries need a reliable energy supply, and large-scale infrastructure is difficult to replicate quickly.
APA’s earnings are supported by contracted revenue, regulated assets, and long-term customer relationships. That can give investors a more defensive income stream than many cyclical dividend shares.
The trailing dividend yield is currently around 5.5%, which I think looks appealing for a business with this type of infrastructure backing.
There are risks to consider. APA is exposed to interest rates, debt costs, regulation, and long-term changes in Australia’s energy system. Investors should also remember that infrastructure shares can still fall when bond yields rise or when the market becomes more cautious toward income assets.
But for investors seeking a combination of income and exposure to essential infrastructure, I think APA is a solid option.
Charter Hall Long WALE REIT (ASX: CLW)
The second ASX dividend share I would consider is Charter Hall Long WALE REIT.
This real estate investment trust (REIT) focuses on properties with long leases and tenants with strong covenants. The idea is simple: own a diversified portfolio of assets that can provide stable rental income over time. That makes it very relevant for income investors.
The portfolio is currently valued at around $6 billion, comprising 515 properties, with 99.9% occupancy and a weighted average lease expiry (WALE) of 9.2 years.
I think those numbers are important because they point to income visibility. A long WALE portfolio can reduce some of the uncertainty that comes with shorter leases, vacancy risk, and constant tenant turnover.
Another positive is that the Charter Hall Long WALE REIT currently has a trailing distribution yield of around 7%.
That is a strong yield, but investors should still be realistic. REITs can be sensitive to interest rates, property valuations, and refinancing costs. If rates remain higher for longer, the sector may continue to face pressure.
Even so, I think its long leases, high occupancy, and diversified property base make it a compelling income option for investors comfortable with property market risk.
Foolish Takeaway
For income investors, APA and the Charter Hall Long WALE REIT offer two different ways to collect regular cash flow from real assets.
APA is linked to energy infrastructure. Charter Hall Long WALE REIT is linked to long-leased property.
Both come with risks, especially while interest rates remain a major focus for markets. But I think their yields are supported by assets that play a clear role in the economy.
The post 2 rock-solid ASX dividend shares to buy this May appeared first on The Motley Fool Australia.
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Motley Fool contributor Grace Alvino has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Apa Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.