2 ASX dividend shares growing their dividend every year

The two ASX dividend shares in this article are growing their dividends every year.

The Reserve Bank of Australia (RBA) recently decided to cut the official interest rate to almost 0% with a reduction to 0.10%.

ASX shares pay out dividends from their profit each year and some are growing their dividend every year.

Here are two examples rated as buys by the Motley Fool Dividend Investor service:

Rural Funds Group (ASX: RFF)

Rural Funds is an agricultural real estate investment trust (REIT). That means it’s an owner of commercial farmland. It leases out that farmland to many large, quality tenants.

Some of those tenants include: JBS, Select Harvests Limited (ASX: SHV), Olam, Australian Agricultural Company Ltd (ASX: AAC), Queensland Cotton, Treasury Wine Estates Ltd (ASX: TWE) and Stone Axe.

The farms that Rural Funds owns are diversified – they are spread across different states and climates. They’re also diversified by farm type, it has almonds, cattle, macadamias, vineyards and cropping (cotton and sugar).

All of the rental contracts have rental growth built into them. The contracts mostly have a fixed 2.5% rental increase (with market reviews) or are linked to CPI inflation. This is a core factor of Rural Funds’ goal of growing the distribution yield by 4% per annum for investors. It has increased its distribution each year for the past several years.

Rural Funds has a portfolio weighted average lease expiry (WALE) of 10.9 years, which means the tenants are there for the long-term.

The ASX dividend share continues to invest in capital expenditure which aims to increase rental income in the future from those farms. In FY21 it’s planning to spend $5.7 million on water delivery infrastructure for almonds. For ‘productivity developments and infrastructure’ it’s planning to spend $10.8 million on cattle farms and $10 million on cropping farms. There is also another $1.1 million of capex planned for its vineyards and macadamias.

Based on a forecast FY21 distribution of 11.28 cents per unit, the Rural Funds share price offers a yield of 4.5%.

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

Soul Patts is an investment conglomerate that owns stakes in a variety of listed and unlisted businesses.

It has large positions in companies like TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Australian Pharmaceutical Industries Ltd (ASX: API), Tuas Ltd (ASX: TUA) and Clover Corporation Limited (ASX: CLV).  

The ASX dividend share also has positions in unlisted businesses and industries like resources, agriculture, financial services, swimming schools and a company called Ampcontrol.

Soul Patts has increased its dividend every year since 2000. That’s the longest record on the ASX.

It has actually paid a dividend every year since it listed in Australia in 1903.

Soul Patts funds its dividend from the investment income it receives from its investments (the dividends, distributions and interest) and then it pays its operating expenses. What remains is the net operating cashflow from its investments – this profit measure is what Soul Patts pays its dividend from. In FY20 its net cash from investments grew 48.8%.

The ASX dividend share paid out 56.93% of its net cashflows as a dividend in FY20, meaning the remaining 43% can be re-invested into other investment opportunities.

In FY20 the ASX dividend share grew its annual dividend payout by 3.4% to 60 cents. Over the past 20 years it has grown its ordinary dividend at a compound annual growth rate of 9.2% per annum.

At the current Soul Patts share price, it offers a trailing grossed-up dividend yield of 3.1%.

More reading

• Brickworks (ASX:BKW) hasn’t cut its dividend for over 40 years
• 2 ASX dividend shares analysts rate as a ‘buy’
• These ASX dividend shares offer 4.5%+ dividend yields
• Why Soul Patts (ASX:SOL) is a strong ASX dividend share
• Is the Rural Funds (ASX:RFF) share price a buy for the dividend yield?

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. owns shares of Clover Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, RURALFUNDS STAPLED, Treasury Wine Estates Limited, 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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