How to build a successful ASX dividend portfolio

The biggest dividend yield on the ASX can look tempting.

A higher yield means more income today, which can appeal to retirees, passive income investors, and anyone trying to make their portfolio work harder.

But a successful ASX dividend portfolio needs more than a big headline yield.

I think the goal is to own businesses that can keep paying income through different conditions, while still having enough growth to protect purchasing power over time.

Start with dependable earnings

The first thing I would look for is dependable cash flow.

Coles Group Ltd (ASX: COL) is one example of the kind of ASX dividend share I think can play a role.

Grocery demand is not exciting, but it doesn’t need to be. Households still need food, household essentials, and everyday products through good times and tougher periods.

Coles still faces competition, cost inflation, and pressure from value-conscious shoppers. Even so, the defensive nature of its sales can help support earnings and dividends.

Telstra Group Ltd (ASX: TLS) is another ASX share I would consider for a dividend portfolio.

Connectivity sits behind so much of daily life now. Mobile data, internet access, streaming, work, payments, and communication all depend on reliable networks.

Telstra still needs to keep investing in its network, and competition is always a factor. But I think its essential role in the economy gives it a solid place in an income-focused portfolio.

Add assets with different income drivers

I would also want income that comes from different parts of the economy.

Transurban Group (ASX: TCL) is one ASX share I think can fit that idea. Its toll road assets are used by millions of drivers, and traffic volumes can support long-term distributions.

The appeal here is different from a supermarket or telecommunications business. Transurban is more about infrastructure, urban growth, pricing, and long-life assets.

Property income can also have a place, as long as investors stay selective.

Charter Hall Long WALE REIT (ASX: CLW) gives exposure to a portfolio of long-leased properties. Long leases can provide more visibility over rental income, although investors still need to watch debt costs, property valuations, and tenant quality.

I would not want a dividend portfolio to depend too heavily on one sector. Mixing supermarkets, telecommunications, infrastructure, and property can reduce the pressure on any single income source.

Leave room for dividend growth

A dividend portfolio also needs businesses that can grow over time.

Commonwealth Bank of Australia (ASX: CBA) is rarely the cheapest bank, but it has one of the strongest franchises on the ASX. Its customer base, deposit strength, digital position, and brand can support long-term earnings and fully franked dividends.

Wesfarmers Ltd (ASX: WES) is another share I would consider, even though its yield is not usually the highest on the market.

I like the company’s ability to reinvest, improve its businesses, and allocate capital across different opportunities. Over time, that kind of growth can help dividends become much more rewarding.

This is where I think some income investors can go wrong. A lower yield today can still be attractive if the business has a better chance of increasing its payout over the next decade.

Foolish takeaway

I think a successful ASX dividend portfolio should be built around more than yield.

The best approach, in my view, is to combine defensive earners, infrastructure or property income, and companies that can grow their dividends over time.

That kind of mix can help investors collect income today without giving up on long-term growth.

The post How to build a successful ASX dividend portfolio appeared first on The Motley Fool Australia.

More reading

• Are CBA shares still worth buying for the long term?
• How I’d invest $10,000 in ASX shares for the next decade
• What did the market look like 10 years ago? Here’s what’s changed for the ASX 200
• 3 of the best ASX dividend stocks to supplement your superannuation
• Buy, hold, sell: L1 Long Short Fund, REA, Wesfarmers shares

Motley Fool contributor Grace Alvino has positions in Commonwealth Bank Of Australia, Transurban Group, and Wesfarmers. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Transurban Group and Wesfarmers. The Motley Fool Australia has positions in and has recommended Telstra Group and Transurban Group. The Motley Fool Australia has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.