How I’d invest $50,000 in ASX dividend shares for retirement, if I had to start from scratch

Investors looking for assets to fund their life in retirement could do well by looking at ASX dividend shares, in my opinion.

Without a crystal ball, it’s tricky to work out how long your retirement nest egg will need to last – hopefully as long as possible! I think this is where investing in shares can offer that level of dividends and growth to provide income for the long-term, with no end date in mind.

One strategy that some investors follow is the concept of buying growth assets and selling them as time goes on. That’s certainly a strategy that could work, but I don’t like the idea of having to sell shares during a market crash, which could eat into the nest egg fund, rather than simply living off the dividends.

So, which ASX dividend shares can provide an attractive source of long-term dividends? I’m going to put together a portfolio worth $50,000 in some of the stocks I’d pick to pay for my income needs in retirement.

Rural Funds Group (ASX: RFF)

For investors interested in ASX agricultural shares, Rural Funds could be a solid pick. A real estate investment trust (REIT), it owns various farms across cattle, almonds, macadamias, vineyards and cropping (sugar and cotton).

Rural Funds aims to boost its total distribution to shareholders by 4% per annum. It has increased the payout every year since listing several years ago.

The 4% increase in FY23 to 12.2 cents per unit (including franking credits) translates into a distribution yield of 4.75%.

I’d invest $7,500 here.

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

I mentioned this business in a recent article about investing in a general portfolio when starting from scratch, but I think it’d be a difficult choice to leave out Soul Pattinson from a retirement-focused portfolio as well.

It’s one I own in my own portfolio. Soul Pattinson has a diversified portfolio of assets across sectors like building products, property, telecommunications, resources, agriculture and so on.

The ASX dividend share has grown its dividend every year since 2000. That’s the longest dividend growth streak on the ASX.

I’d invest $10,000 here.

APA Group (ASX: APA)

APA owns a large pipeline network of assets across Australia, transporting half of the country’s national gas usage. The company could benefit from inflation, with its revenue linked to inflation thanks to contracts. It’s also investing in renewable energy and researching how its pipelines can transport hydrogen in a greener future.

The ASX dividend share has grown its distribution every year for more than a decade and a half. APA’s estimated distribution in FY23 is 55 cents per share, equating to a forward yield of 5.1%.

I’d invest $6,500 here.

Charter Hall Long WALE REIT (ASX: CLW)

This is another REIT, but it’s much more diversified. Its properties are spread across a number of sectors including telco exchanges, agri-logistics, office, Bunnings Warehouses, hotels and Dan Murphy’s, BP service stations, distribution centres and so on.

But, the common factor across the properties is long-term leases. REIT aims to have all tenants on long-term rental agreements. The weighted average lease expiry (WALE) at 30 June 2022 was 12 years, with an occupancy rate of 99.9%. After a fall in the share price, the FY23 distribution yield is projected to be 6.3%.

I’d invest $6,000 here.

Wesfarmers Ltd (ASX: WES)

Wesfarmers has an impressive portfolio of businesses including Bunnings, Kmart and Officeworks, which are often seen as leaders in their respective retail categories. The start of Wesfarmers Health with the Priceline acquisition opens up another growth avenue. I like the plan to start lithium mining as well. There is plenty of growth potential and diversification on display here.

It’s a quality ASX dividend share in my view, and it usually pays a solid dividend each year. In FY22, it grew the annual dividend by 1.1% to $1.80 per share. That translates into a grossed-up dividend yield of 5.5%.

I’d invest $7,500 here.

Sonic Healthcare Ltd (ASX: SHL)

Sonic is a global pathology business, though it is also growing in another adjacent healthcare segments. I think this is a defensive business, with growth potential through ageing demographics, new tests, acquisitions and a backlog of testing due to COVID-19. AI is also an interesting area.

It has a “progressive dividend policy”. In FY22 the ASX dividend share grew the dividend by another 10% to $1 per share. This is a grossed-up dividend yield of 4.25%.

I’d invest $2,500 here.

BHP Group Ltd (ASX: BHP)

BHP is Australia’s biggest resource business, with its portfolio including iron ore, copper, nickel, steel-making (metallurgical) coal and potash (fertiliser). It’s committed to paying at least 50% of its profit as a dividend.

There will be ups and downs of the dividend, but I think a 30% fall of the BHP share price since the 2022 peak in April offers a good time to buy shares for the long-term. The FY24 grossed-up dividend yield is still expected to be 10.6% (according to CMC Markets), which is based expectations of materially lower profits between now and then.

I’d invest $6,500 here.

Duxton Water Ltd (ASX: D2O)

Duxton Water is a unique business on the ASX. It owns water entitlements and leases them out to farmers who want the security of water access. Water is very important for the agricultural sector and demand could increase due to more permanent crop plantings, such as almonds. Water demand and prices could be largely uncorrelated to economic cycles, according to Duxton.

The ASX dividend share is expecting to grow its half-yearly dividend from 3.3 cents per share from this reporting season, to 3.4 cents per share at the end of 2022, to 3.5 cents per share for the interim payment in 2023, to 3.6 cents per share at the end of 2023, to 3.7 cents per share for the 2024 interim payment.

An annual dividend of 7.3 cents per share would be a grossed-up dividend yield of 6.2%.

I’d invest $3,500 here.

The post How I’d invest $50,000 in ASX dividend shares for retirement, if I had to start from scratch appeared first on The Motley Fool Australia.

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More reading

• Why did the BHP share price smash the ASX 200 in August?
• 5 ASX 200 shares turning ex-dividend tomorrow
• Is the Wesfarmers share price a buy following the company’s latest results?
• Experts name 2 top ASX dividend shares to buy next week
• 27% of ASX 200 shares cut dividends during earnings season. What’s next?

Motley Fool contributor Tristan Harrison has positions in DUXTON FPO, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended APA Group, RURALFUNDS STAPLED, Washington H. Soul Pattinson and Company Limited, and Wesfarmers Limited. The Motley Fool Australia has recommended Sonic Healthcare Limited. 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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