There are a number of dividend shares on the ASX that I’d buy to boost my income.

It’s getting harder to find good sources of income these days. Interest rates from bank accounts are now incredibly low after the RBA cut interest rates to just 0.25%.

Business earnings are also uncertain at the moment due to COVID-19 impacts. I think there’s a certain number of dividend shares that would be solid picks to boost my income, but others may not be as good as some investors expect.

Here are three dividend shares I’d go for:

Dividend share 1: Naos Emerging Opportunities Company Ltd (ASX: NCC)

The listed investment company (LIC) structure is great for investors who want income. It enables the LIC to generate investment profits from capital gains and investment income, the LIC can then pay out a smoothed dividend to shareholders.

But I only think certain LICs are worth investing in. Plenty of LICs just offer index-like returns with higher fees.

Naos Emerging Opportunities is a LIC that invests in ASX shares with market caps under $250 million. It is a good dividend share because it has maintained or grown its dividend every year since FY13. It currently has a grossed-up dividend yield of 12%.

If the LIC can continue to generate solid returns then the dividend can at least be maintained. It holds a portfolio of high-conviction shares, it only has around 10 positions. It aims to be a long-term investor with each investment choice.

Dividend share 2: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Patts is probably my favourite dividend share on the ASX. It has increased its dividend every year since 2000. The first thing I look for with dividends is reliability. I don’t think there’s much point having a big dividend yield one year and then suffering a large cut one year later. Soul Patts has paid a dividend every year since its inception in 1903.

The investment conglomerate has a diversified portfolio of shares which sends a flow of quality dividends to Soul Patts each year. Some holdings include TPG Telecom Ltd (ASX: TPM), Milton Corporation Limited (ASX: MLT), Bki Investment Co Ltd (ASX: BKI) and Brickworks Limited (ASX: BKW).

The business funds its dividend from the investment income it receives, less operating expenses. In FY19 it retained around 20% of its regular net operating cash flow to re-invest into more opportunities.

The dividend share has already guided that the final FY20 dividend will be an increase on FY19’s final dividend.

It’s steadily making new investments to diversify the portfolio further. New investments include agriculture, retirement living and regional data centres.

Dividend share 3: WAM Leaders Ltd (ASX: WLE)

WAM Leaders is another LIC. This one is managed by the high-performing team at Wilson Asset Management (WAM). It looks to make good returns from the larger businesses on the ASX.

The dividend share has grown its dividend each year since FY17. It currently has an annualised grossed-up dividend yield of 8.7%.

Since inception in May 2016, its investment performance (before fees, expenses and taxes) has outperformed the S&P/ASX 200 Accumulation Index by 3.8% per annum. Over the past year its gross portfolio performance has been 11.4% better than the benchmark. I think that’s an impressive performance from the dividend share.

Some of its top 20 holdings are similar to the ASX 20. But some holdings at the end of May 2020 were different, like Downer EDI Limited (ASX: DOW), Fortescue Metals Group Limited (ASX: FMG), OZ Minerals Limited (ASX: OZL), QBE Insurance Group Ltd (ASX: QBE), Ramsay Health Care Limited (ASX: RHC) and Santos Ltd (ASX: STO).

As a bonus, WAM Leaders is trading at a 7% discount to the 31 May 2020 net tangible assets (NTA).

Foolish takeaway

Each of these dividend shares would be really good options to boost your income. Naos clearly has the biggest dividend yield, but that doesn’t leave much room for share price growth over time. Soul Patts is my preferred choice because of its low operational costs and ultra-long-term record of dividends and reliability.

More reading

• 3 long-term ASX 200 shares I’d buy right now
• What are the best ASX shares for dividends?
• Forget bank interest, try these ASX 200 dividend shares!
• 2 ASX blue chip shares I think every portfolio should hold
• 3 ASX dividend shares to buy and replace a term deposit

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Ramsay Health Care 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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Apparently, the problem with the stock market is that retail investors are screwing things up.

Apparently, they’re taking advantage of free brokerage, and causing merry hell.

Apparently, if we only stopped those ‘know nothing’ investors, all would be okay again.

And in reality?

In reality, it’s a nice combination of ‘bait and switch’ and a fig leaf to cover the sins of the supposed professionals.

Those professionals would have you believe two things:

1. DIY investors are the problem; and

2. Highly-paid professionals are the solution.

I know.

I was as shocked as you are.

Imagine that. We can’t be trusted, but they can!

Well, for a fee, of course.

Have you ever read anything so ludicrous?

Or self- serving?

I mean, it’s not like they’re worried about their fees, right?

Or that they’d benefit (handsomely) from convincing us that we should leave it to the ‘big boys’.

Or maybe they’re just trying to find plausible excuses for getting their stock-picking calls wrong?

Yes, dear Foolish reader, it’s like an adult version of Scooby-Doo:

“I would have been right, if it wasn’t for those meddling kids”

See, all we have to do is stop normal people making their own decisions and…

(Sorry, I fell off my chair in hysterics).

Ah, but you’re biased, Phillips. You just want to get more customers.

Maybe.

I sure as hell want more people to take control of their finances.

To spend less.

Save more.

Invest regularly.

Benefit from the compounding machine that is the ASX.

Yep, guilty as charged.

I just want people to be better off.

So, sue me.

Can’t that be done by those complaining about the ‘distortion’ of the market by retail investors?

I guess.

If they have a long-term track record of beating the market — after fees.

But if that’s true, they have no need to worry about the rest of us.

Indeed, if they’re that good, any so-called ‘distortion’ will just be a massive money-making opportunity for them.

They should be cheering it on!

Confused?

Me too.

I mean, those people did realise the market would recover, right?

And they’ve made a fortune since, right?

Oh….

—–

All of that said — and without stepping back from the criticism one iota — I do worry about the rise of free brokerage but from a very different perspective.

I’ve written about it before, but when even ASIC feels compelled to step in and say something, we need to be careful.

It’s an unpopular view, to be sure: “You actively want me to have to pay higher fees????”

Just put the pitchforks down for a second, and hear me out.

See, any time you consider an issue, you need to think not just ‘rationally’, but through the lens of behavioural psychology.

Let me give you a simple example:

Last time I wrote about this, the subject line of the email I sent included the word ‘free’ (as in ‘free brokerage’).

Such is the power of that word, the email open rates (the number of people who opened the email) doubled.

Yes, doubled.

From — and I’ll use the technical terms here — ‘a lot’ to ‘a helluva lot’.

Shedloads of people opened that email.

(I was so surprised, I actually checked with our tech team to make sure there wasn’t a problem with the report.)

I mean, I’m good. But not that good. (Not even as good as I like to believe. But that’s a whole other issue.)

‘Cheap’ is good.

But ‘Free’ is catnip.

Now, let’s turn our gaze to the free ‘thing’: brokerage.

If something costs money, we value it. We treat it carefully, weighing up our options.

When it’s free? Well, we don’t really care about the object at all, do we?

If I told you something that was previously $2 was now $1, you’d probably buy more of it.

If I told you it was free?

I’d get knocked over in the rush.

The difference is so disproportionate, there is no possible rational explanation.

The ‘extra’ bit? Pure psychology.

And the problem with that?

It’s not rational. We do it because some part of our subconscious brain overrides the rational bit.

Which is fine if I’m giving away lollies.

But if it (unintentionally) encourages people to abandon all caution and day trade like banshees?

Well, I don’t think you need me to tell you how that ends, do you?

And if you think I’m speculating, you’re right.

But I do have some history on my side.

You reckon Australians buy and sell investment property too much?

If you said ‘yes’, you should have seen the Yanks before the GFC.

In activity which fuelled the pre-GFC madness, Americans were flipping property like they were pancakes.

(‘Flipping’ is buying a house, renovating it (or not) and getting it back on a fast-rising market as quickly as possible before doing it all again. The emphasis here is on speed.)

There were TV shows called, I kid you not, First Time Flippers, Flip This House and plenty more.

(An Australian version was tried, and thankfully only lasted a handful of episodes!)

The difference between here and there?

Lots, probably.

But one thing that kept the lid on house flipping here was Stamp Duty.

And yes, I hate paying stamp duty as much as you do.

But I’m pretty sure it saved us — at least in part — from the worst excesses of the GFC (and probably since, as well).

Economists hate ‘friction’ — anything that slows down the rate of activity in a market.

And God help anyone who stands between a hard-core economist or free-marketeer and the chance to remove some friction.

Of course, economists also count hospital visits, panel beaters, and earthquake damage repair in GDP, even though they’re just restoring the status quo (and the ‘cost’ of the damage is never deducted), so let’s just say economic fundamentalism has some, well, issues.

The solution?

I’m not sure I know, with certainty.

The last thing I want is to put a barrier in front of people who would otherwise invest, but for whom the brokerage is a stumbling block, either psychologically or financially.

Perhaps removing the flat “$X per trade” and replacing it with a set percentage would work.

Or maybe we charge people to buy, but let them sell without brokerage.

And you can give the fee to charity for all I care. I have no interest in making stockbrokers rich, but I’m pretty set against making new investors poor by giving them both the incentive and the ability to trade too often, robbing them of the very best part of investing:

Long-term compounding.

Fool on!

More reading

• Top brokers are urging you to buy these 3 ASX stocks today
• Why Morgans is urging investors to buy ASX big bank stocks today
• Here are 3 ASX 200 shares with dividend yields over 8%
• ASX 200 flat: Altium update disappoints, Metcash posts full year loss
• Is the Domino’s Pizza share price a good buy at $68?

Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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It’s hard to keep the bulls at bay! The morning market sell-off reversed at lunch with the S&P/ASX 200 Index (Index:^AXJO) trading 0.7% higher in the last hour of trade.

It’s not too late to join the party either. Leading brokers have just named three ASX stocks that are trading at a significant discount to fair value.

While it’s the iron ore majors like Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) that have been dominating the spotlight in the sector, Goldman Sachs points to a lesser known buy idea.

New iron ore champ

The stock is Canadian miner Champion Iron Ltd (ASX: CIA). The broker initiated coverage on the stock with a “buy” recommendation and 12-month price target of $3.50 a share.

Champion’s main asset is its 100% owned Bloom Lake iron ore mine in Northern Quebec. Management is aiming to double production to 15 million tonnes a year by the second quarter of 2023 and Goldman thinks is one of the lowest capital intensity iron ore expansions globally.

“Previous owner Cliffs had already spent US$1.2bn before Phase II was placed on hold,” said the broker.

“Remaining capex requirements for CIA for the expansion from 8Mtpa to 15Mtpa is C$634mn (US$480mn) and equates to a capital intensity of just US$69/t.”

That’s well below the US$144 a tonne for Rio’s IOCC expansion and US$118 a tonne paid by FMG for its Iron Bridge project.

Price target upgrade

Meanwhile, Morgan Stanley upgraded its price target on Charter Hall Group (ASX: CHC) by a massive 28.2% to $11.60 a share and reiterated its “overweight” call on the property group.

Not only is the group relatively unaffected by the COVID-19 pandemic, it’s using the opportunity to acquire assets in the turmoil.

“One of the under-appreciated points about CHC is the expansion of its Funds Management margin – increasing from c.40% in FY15 to c.70% in FY19,” said the broker.

This margin expansion is sustainable thanks to scale, a focus on lower-touch assets like triple-net properties and lower exposure to the troubled retail segment.

Trading at a discount to peers

Finally, Credit Suisse reiterated its “outperform” recommendation on the Healius Ltd (ASX: HLS) share price after it compared it to its closest rival Sonic Healthcare Limited (ASX: SHL).

The review comes in the wake of the sale of Healius’ medical centres to a private equity consortium for $500 million. This will allow management to focus on turning around its underperforming pathology business.

“We estimate HLS pathology has on average, operated at ~300bp lower EBIT margin to SHL, yet this did widen in FY19 to ~400bp,” said the broker.

“In our view, HLS is less profitable relative to SHL due to a larger collection centre footprint, higher rents and less complex test mix.”

Credit Suisse thinks Healius can narrow this gap and pointed out that the stock’s price-earning multiple is at a 10% discount to the ASX200 Industrials (excluding financials).

The broker’s price target on the stock is $3.25 a share.

More reading

• Why Morgans is urging investors to buy ASX big bank stocks today
• Here are 3 ASX 200 shares with dividend yields over 8%
• Iron ore prices: Are the Rio Tinto, Fortescue and BHP share prices a buy?
• ASX 200 flat: Altium update disappoints, Metcash posts full year loss
• Is the Domino’s Pizza share price a good buy at $68?

Motley Fool contributor Brendon Lau owns shares of Rio Tinto Ltd. The Motley Fool Australia has recommended Sonic Healthcare 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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