In this era of COVID-19, it’s hard to find ASX dividend shares that are still increasing their payments to shareholders.

We have seen Ramsay Health Care Limited (ASX: RHC) end its dividend growth record which went back 20 years to 2020. The reduction of elective surgeries really took its toll.

But there are still some businesses out there that are still growing their dividends despite COVID-19.

Here are three ASX dividend shares that are raising their dividend:

Dividend share 1: APA Group (ASX: APA)

APA Group is one of the biggest infrastructure businesses on the ASX.

The business owns a vast network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). APA owns, or manages and operates, a portfolio of assets worth more than $21 billion and delivers half the nation’s natural gas usage.

The ASX dividend share generates reliable cashflow each year, which is why it was able to stick to its distribution guidance of 50 cents per unit this year, this was growth of 6.4% compared to last year. I think that’s solid in this environment.

APA has grown its distribution every year for a decade and a half. At the current APA share price, it offers a FY20 distribution yield of 4.6%.

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

This business, commonly known as Soul Patts, is one of the best dividend share ideas around in my opinion.

Soul Patts doesn’t have a huge yield, its grossed-up dividend yield for FY20 is 4.3% at the current Soul Patts share price. But it’s the consistency of the dividend growth that is particularly attractive to me about Soul Patts. It has grown its dividend every year since 2000. After Ramsay’s dividend capitulation, Soul Patts has the best dividend growth streak on the ASX.

Indeed, the ASX dividend share has actually paid some sort of dividend every year in its listed history dating back to 1903. That’s great reliability. 

The investment conglomerate is invested in a wide variety of different businesses including telecommunications, building products, property, pharmacies, swimming schools, resources and listed investment companies.

Some of its largest holdings include shares like TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Australian Pharmaceutical Industries Ltd (ASX: API), Bki Investment Co Ltd (ASX: BKI) and Milton Corporation Limited (ASX: MLT).

Each year the portfolio sends a stream of investment income to Soul Patts. The investment house pays for its expenses and then pays out most of what’s left as a dividend. In FY19 it kept around 20% of its net operating cashflow to re-invest into more opportunities.

Not only does Soul Patts retain a fifth of its cashflow which will help grow the dividend with new investments, but its current investments will also hopefully grow their own dividends.  

Dividend share 3: Rural Funds Group (ASX: RFF)

Rural Funds is another great ASX dividend share in my opinion.

Each year the farmland real estate investment trust (REIT) aims to increase its distribution by 4% each year. It has grown the distribution every year since it started paying one in 2014.

It’s able to grow the distribution due to two key factors. The first reason is that it has built-in rental increases with all of its farm contracts. That rental indexation is either a fixed 2.5% annual increase or it’s linked to CPI inflation, with market reviews. These rental increases alone will generate pleasing distribution growth for Rural Funds.

The other main contributor for distribution growth is that Rural Funds invests in farm productivity improvements for the benefit of its tenants. Improving the farm increases future rental income, creates a good relationship with the tenant and hopefully improves the value of the farm.

I like the diversification of Rural Funds’ portfolio. It owns farms in the following sectors: cattle, cotton, almonds, vineyards and macadamias. Occasionally it will make an acquisition. 

At the current Rural Funds share price it offers a FY21 distribution yield of 5.6%.

Foolish takeaway

I think each of these ASX dividend shares can continue to grow their dividends throughout the 2020s. At the current prices I’d probably go for Soul Patts because of it how diversified it is and its ability to invest in anything, including farmland and infrastructure if it wanted to.  

More reading

• Why I would put excess funds into ASX dividend shares instead of a savings account
• 4 ASX shares to buy and hold forever
• 3 ASX shares I won’t hesitate to buy in the next market crash
• Forget term deposits and buy these strong ASX dividend shares
• 3 ASX shares I’d buy with $6,000 today

Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of APA Group. 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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The Woolworths Group Ltd (ASX: WOW) share price has climbed 6.2% higher this year, but is the ASX 20 share a good buy?

What industry does Woolworths operate in?

Whilst we all basically know what Woolies does, for investment purposes the Aussie supermarket is classified as operating in the Consumer Staples sector. More specifically, its Global Industry Classification Standard (GICS) industry group is Food & Staples Retailing.

That’s largely due to the company’s flagship Woolworths Supermarkets business. I think that’s a pretty fair analysis given the group’s Australian and New Zealand food segments contributed more than 75% of its half-year revenue in FY 2020.

What’s been happening to the Woolworths share price?

As mentioned, the Woolworths share price has climbed 6.2% higher in 2020. Woolies certainly wasn’t immune from the March bear market, but also didn’t rocket higher like some of its competitors’ shares.

I think one big factor contributing to the company’s share price was its large hotels business, ALH Group. Tight coronavirus restrictions have affected patronage in the hospitality industry which has significantly impacted revenues for the group.

I also feel tough conditions for retail have weighed on investors’ minds given the group’s ownership of the Big W chain.

The Woolworths share price has had a bullish run in the last couple of months, however, with the supermarket giant’s shares up 12.7% since 22 May. 

Given the S&P/ASX 200 Index (ASX: XJO) is down 11.4% this year, Woolies has outperformed the benchmark index by 17.6%.

Who are the major competitors?

Obviously, the major competitor that springs to mind is Coles Group Ltd (ASX: COL). Coles is Woolworths’ major supermarket competitor, with the two operating a duopoly of sorts within the industry (albeit with Aldi and IGA snapping at their heels).

However, Woolworths is a conglomerate. As well as food, and the aforementioned hotels and retail businesses, Woolworths has a sizeable liquor business. Endeavour Drinks generated $4,775 million in FY20 half-year revenue with a portfolio of prominent brands like Dan Murphy’s and BWS.

Given its conglomerate status, Wesfarmers Ltd (ASX: WES) is arguably a better comparison to Woolwoths. Wesfarmers sold off another $1.1 billion stake in Coles (leaving it with a 4.9% interest) but has interests in many different businesses.

In fact, Wesfarmers’ current portfolio includes household hardware (Bunnings), retail (Kmart and Officeworks), Chemicals, Industrials and others.

The Wesfarmers share price is up 9.8% this year while the Coles share price has rocketed 18.0% higher.

Is the Woolworths share price a buy?

Whilst devastating for large parts of the economy, overall the COVID-19 pandemic has been positive for ASX supermarkets. With Aussies spending considerably more time at home, the supermarkets are very much an essential part of our economy right now. Naturally, this has been good for earnings.

The Woolworths share price has done well to climb higher but currently trades at a price to earnings (P/E) ratio of 19.2. That’s very similar to Coles (19.9) and cheaper than Wesfarmers (23.6).

Factoring in a conglomerate discount compared to Coles as a pure supermarket play, I don’t think Woolies shares are particularly cheap right now.

More reading

• Top brokers name 3 ASX 200 shares to buy next week
• Top brokers name 3 ASX 200 shares to sell next week
• Is it too late to invest in gold?
• 2 ASX shares for strong retirement income
• Why the P/E ratio is a flawed metric in 2020

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET, Wesfarmers Limited, and Woolworths 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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One area of the technology sector which is booming in 2020 is cloud computing. This technology really came to prominence this year as people worked from home or streamed endless hours of entertainment via Netflix during lockdowns.

The good news is that this seismic shift is still only getting started and more and more infrastructure is expected to move onto the cloud in the coming years.

I believe this bodes well for the three ASX shares listed below. So much so, they could be top long term options for investors. Here’s why:

Macquarie Telecom Group Ltd (ASX: MAQ)

Macquarie Telecom is a provider of telco and hosting services to corporate and government customers. It is the latter offering that I believe will be the key driver of growth for the company over the 2020s. Its Hosting segment has been growing at a very strong rate and appears well-positioned to continue doing so. Especially after recent capacity expansions were undertaken in order to capture the increasing demand for cloud and cyber security services in Australia.

Megaport Ltd (ASX: MP1)

Another ASX share that looks well-placed to benefit greatly from the cloud computing boom is Megaport. It offers scalable bandwidth for public and private cloud connections, metro ethernet, and data centre backhaul. Its global platform also enables customers to rapidly connect their network to other services across the Megaport Network. They can then be directly controlled by via mobile devices, their computer, or its open API. At the last count, Megaport was connecting more than 1,777 customers in 601 enabled data centres.

NEXTDC Ltd (ASX: NXT)

A final ASX share to consider buying for exposure to the cloud computing boom is NEXTDC. It is an innovative data centre operator which operates a collection of world class sites in key locations across Australia. Demand for its services has been growing very strongly in recent years and particularly in 2020 during the pandemic. This has led to the announcement of major contract wins and the construction of new data centres to cope with demand.

More reading

• These were the best performing ASX 200 shares last week
• 2 exciting ASX tech shares with enormous potential
• Why the NextDC share price jumped 10% higher in June
• 3 high quality ASX 100 shares to buy right now
• Where to invest $1,000 in ASX tech shares today

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of MEGAPORT FPO. The Motley Fool Australia has recommended MEGAPORT FPO. 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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The recent coronavirus market crash may have caused some investors to become increasingly cautious when it comes to managing their portfolios. The pace of decline across numerous stocks may mean that less risky assets appear to be more appealing at the present time.

However, through buying dominant businesses in sectors that have uncertain futures while they offer wide margins of safety, you could generate high returns in the long run. This strategy may boost your financial prospects and enable you to maximise your returns as the world economy recovers.

Investing in unpopular sectors after a market crash

Investing in industries that are unpopular among other investors may seem to be a risky move after a market crash. After all, in many cases they face challenging near-term outlooks, with reduced demand for their products and services likely to negatively impact on their financial prospects.

However, buying stocks when their outlooks are challenging can be a means of obtaining attractive valuations. This may enhance your long-term return prospects, since the global economy is very likely to recover from its current difficulties to post positive growth. This could lead to rising stock prices across those industries that are currently unloved by investors.

Furthermore, with investors having priced in the risks facing many sectors, there could be opportunities to buy high-quality businesses while they offer attractive risk/reward ratios.

Buying dominant businesses

Investing in the strongest businesses within unpopular sectors could be a sound move in a market crash. It may reduce your overall risks, since your capital will be focused on those companies that have the best balance sheets and strongest market positions relative to their peers. They may be less likely to succumb to a period of weaker sales than their industry rivals.

Dominant businesses may also be in a position to capitalise on industry weakness through acquisitions while company valuations are low. This may increase their market share and allow them to generate higher profits in the long run, which could lead to them enjoying a rising stock price that boosts your portfolio’s performance.

A margin of safety

Clearly, the future prospects for the world economy are highly uncertain at the present time. The stock market may have rebounded from its recent crash, but risks such as a second wave of coronavirus could persist over the coming months. This may cause investor sentiment to become highly volatile, which could lead to disappointing stock price returns over the near term.

As such, obtaining a wide margin of safety when buying stocks could be a logical move for all investors. It may help to limit your risks, and provide greater scope for capital growth in the long run.

Despite the recent market rebound, a number of companies continue to trade on valuations that are significantly below their historic averages. Therefore, there are numerous opportunities to buy undervalued stocks and hold them over the long run.

More reading

• How ASX investors can profit from the cloud computing boom
• Top brokers name 3 ASX 200 shares to buy next week
• Top brokers name 3 ASX 200 shares to sell next week
• Is it too late to invest in gold?
• Where I’d invest $25,000 into 3 ETFs

Motley Fool contributor Peter Stephens 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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Last week saw a large number of broker notes hitting the wires once again. Three buy ratings that caught my eye are summarised below.

Here’s why brokers think investors ought to buy them next week:

Afterpay Ltd (ASX: APT)

According to a note out of Morgan Stanley, its analysts have upgraded this payments company’s shares to an overweight rating and lifted the price target on them to $101.00. Morgan Stanley has been impressed with Afterpay’s growth and its better than expected credit quality. It expects more of the same in the near term and is forecasting revenue increasing at a compound annual growth rate of 60% through to FY 2022 with a stable net transaction margin of ~2%. This is expected to be underpinned by its in-store rollout in the U.S. and its expansion into China. I agree with Morgan Stanley and believe Afterpay would be a quality long term investment option.

Breville Group Ltd (ASX: BRG)

Analysts at Morgans have retained their add rating and $27.00 price target on this appliance manufacturer’s shares. According to the note, the broker believes Breville is well-placed for growth thanks to its international expansion, more eating at home because of the pandemic, and growing demand for coffee machines. I think Morgans makes some good points and Breville could be a good buy and hold option.

Crown Resorts Ltd (ASX: CWN)

A note out of Credit Suisse reveals that its analysts have retained their outperform rating but trimmed the price target on this casino and resorts operator’s shares to $10.80. The broker has downgraded its earnings estimates to reflect recent lockdowns in Melbourne. However, it believes investors should look beyond this short term pain and focus on its positive long term outlook. While I agree that it has a positive longer term outlook, I would keep my powder dry until the pandemic passes.

More reading

• Top brokers name 3 ASX 200 shares to sell next week
• Is it too late to invest in gold?
• The market is going long on the Afterpay share price but shorting its weaker rival
• How I’d build a $100,000 share portfolio with ASX ETFs
• These were the best performing ASX 200 shares last week

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Crown Resorts 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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Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that caught my eye are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

AGL Energy Limited (ASX: AGL)

According to a note out of the Macquarie equities desk, its analysts have downgraded this energy company’s shares to an underperform rating with a $15.91 price target. The broker made the move largely on concerns over weak power prices. In addition to this, it notes that a major contract is close to expiring with Alcoa. It fears that the renewal could be done on less than favourable terms given current market conditions. The AGL Energy share price ended the week at $16.89.

Cochlear Limited (ASX: COH)

Analysts at UBS have retained their sell rating and $160.50 price target on this hearing solutions company’s shares. Although Cochlear has just received approval for four new products in the United States and expects this to cement its leadership position in the cochlear implant market, it isn’t enough for a change of rating. According to the note, the broker continues to believe that the market is expecting too much from the company in the near term. As a result, it feels that its shares are overvalued at the current level. The Cochlear share price last traded at $190.47.

Netwealth Group Ltd (ASX: NWL)

A note out of Credit Suisse reveals that its analysts have retained their underperform rating but lifted their price target on this investment platform provider’s shares slightly to $8.45. Although it was pleased with its fourth quarter update, it remains concerned about its prospects in FY 2021. The broker notes that a number of factors look likely to put pressure on its revenue margins next year. This could see Netwealth fall short of expectations. The Netwealth share price ended the week at $10.70.

More reading

• Top brokers name 3 ASX 200 shares to buy next week
• Is it too late to invest in gold?
• How I’d build a $100,000 share portfolio with ASX ETFs
• These were the best performing ASX 200 shares last week
• ASX 200 drops 0.6%, Afterpay hits a new record

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia owns shares of Netwealth. The Motley Fool Australia has recommended Cochlear Ltd. 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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With all of the drama, volatility and success that we’ve seen in the S&P/ASX 200 Index (ASX: XJO) recently, gold as an asset has slipped under the radar somewhat. Yet the gold price is today sitting at record highs and just below its all-time high. Given that gold has been used as an investment and a store of wealth for thousands of years, seeing it approach its most expensive price in history is something to pay attention to.

Yes, the yellow metal was commanding a price of over US$1,820 per ounce this week. Considering it was only asking around US$1,415 this time last year, I would say that gold is well on the way to breaching its all-time high of US$1,920 per ounce that we briefly saw back in 2011.

What is fuelling gold’s rise?

Gold is a ‘safe haven’ asset that investors usually turn to in times of economic uncertainty and risk. As gold’s supply is finite and its value intrinsic, the metal is often perceived as a good hedge against currency debasement and share market manipulation – both of which are concerning many investors currently. That’s because, in their efforts to hold up the world economy in the face of the coronavirus pandemic, central banks are printing money and issuing bonds at rates never before seen in history. Since 2008, the United States Federal Reserve has increased its balance sheet from around US$900 billion worth of assets to more than US$7 trillion. Around half of that increase has been added in just the past 3½ months.

That has some investors very worried. And precious metals are viewed by many of these investors as the best hedge against such trends.

Is it too late to invest in gold?

Many investors don’t feel the need to invest in gold – and fair enough too. Any precious metal is an unproductive asset which gives off no yield. It’s hardly the best asset to grow wealth. But I do acknowledge the appeal of a gold position in these uncertain times. So if you are this way inclined, I do think there’s still some room left for gold to move even higher. We are right now sitting in a ‘perfect storm’ for the yellow metal. Economic uncertainty abounds, we are in the midst of a global pandemic, and geopolitical tensions are at their highest level in years. In my view, all of these powerful forces are highly supportive of continued growth in gold prices.

If you don’t want to hoard bullion under your bed, an easy way to get exposure to gold is through exchange-traded funds (ETFs) like the ETFS Physical Gold ETF (ASX: GOLD). ASX gold miners are another route you can consider. Newcrest Mining Limited (ASX: NCM) is the ASX’s largest gold miner, but there are many other mid-tier companies you could also explore.

More reading

• Top brokers name 3 ASX 200 shares to buy next week
• Top brokers name 3 ASX 200 shares to sell next week
• How I’d build a $100,000 share portfolio with ASX ETFs
• These were the best performing ASX 200 shares last week
• ASX 200 drops 0.6%, Afterpay hits a new record

Motley Fool contributor Sebastian Bowen owns shares of Newcrest Mining Limited. 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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Exchange-traded funds (ETFs) are a great way to grow your wealth over the long-term.

It’s better to hold onto investments for the long-term than constantly shift your investment holdings. With ETFs you are usually investing in a diversified group of shares at a low cost. ETFs are a great way to invest for most people’s portfolios.

If I had $25,000 to invest into three ETFs, these are the ones I’d choose:

BetaShares Global Quality Leaders ETF (ASX: QLTY) – $10,000

Over the longer-term it’s the quality businesses that have the best chance of delivering good returns.

This ETF is invested in global businesses which rank highly on quality metrics. Those metrics are return on equity, debt to capital, cash flow generation ability and earnings stability. If shares display good performance on each of these metrics then it would be hard for them not to produce good returns.

BetaShares provides this ETF for a cost of just 0.35% per annum, which is cheap compared to most fund managers out there. The lower the management fee the more returns that are left in the pocket of investors.

What shares count as high quality? Its top holdings include Nvidia, Adobe, Apple, Accenture, Intuit, Facebook, Vertex, Alphabet and L’Oreal.

It has performed well since inception in November 2018 with net returns of 19.76% per annum. Past performance is definitely not a guarantee of future performance, but it shows how well ‘quality’ can perform even during the COVID-19 pandemic.  

BetaShares Global Sustainability Leaders ETF (ASX: ETHI) – $10,000

Some investors may want to invest with an ethical screening process. It can be a lot of work to try to identify which individual businesses are operating in ways that you agree with. This ETF offers investors a good portfolio of shares that have been through a thorough ethical screening process.

It invests in businesses that have been identified as climate leaders that have also passed screens to exclude companies with significant exposure to fossil fuels or engaged in activities deemed inconsistent with responsible investing. Some examples of exclusions are gambling, tobacco and alcohol businesses.

Which global shares make it into the ETF as ethical? It owns around 200 names. Its top holdings include: Apple, Nvidia, Mastercard, Visa, Adobe, Home Depot, Paypal, Netflix and Toyota.

I think it’s a good sign that Apple, Nvidia and Adobe are three of this ETF’s top holdings because they also qualified as ‘quality’ businesses in the first ETF I mentioned.

Over a third of this ETF (36.3%) is allocated to IT and it has an annual management fee of 0.59%. Those are two pleasing factors that I like to see for potential strong net returns.

The net returns have indeed been very strong. Since inception in January 2017 this ETF has generated a net return of 20.7% per annum.

Investors haven’t sacrificed returns by investing in this ETF.

BetaShares FTSE 100 ETF (ASX: F100) – $5,000

UK shares wouldn’t seem like an obvious place to invest, but I think there are several good reasons to think about businesses on the London Stock Exchange.

With this ETF you get exposure to the 100 biggest companies listed in London. Many of the holdings are global giants with earnings from all over the world. 

Its top 10 holdings are: Astrazeneca, GlaxoSmithKline, HSBC, British American Tobacco, Diageo, BP, Royal Dutch Shell, Rio Tinto, Reckitt Benckiser and Unilever.

The ETF offers good diversification. The main reason I chose it with my theoretical $25,000 money was for the dividend yield. At the end of May 2020 the underlying dividend yield was 5.8%. That’s a solid starting yield from an ETF which has global earnings. The other two ETFs I mentioned don’t have big dividend yields. So this investment would boost a portfolio’s overall year.

Its annual management fee is 0.45%, which isn’t bad at all.

Foolish takeaway

I really like each of these ETFs, particularly the ethical and quality ones. I’d be quite happy for one of those two ETFs to be my only investment because they each own over 100 quality shares. At the current prices I’d probably go for the quality ETF. 

More reading

• 3 ASX shares that I’d invest $1,000 into EVERY month
• Starting to invest with $500? Here are 2 ASX shares
• Do you have $1k to invest? Buy 1 of these ASX shares
• 2 ETFs for easy investing and good returns
• I don’t normally buy ETFs, but I would buy these 2

The post Where I’d invest $25,000 into 3 ETFs appeared first on Motley Fool Australia.

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Buying dividend shares to make a passive income may seem to be a risky move after the stock market’s recent crash. However, a lack of appeal from other income-producing assets such as cash and bonds may mean that dividend shares offer an impressive long-term outlook.

Furthermore, with many income stocks offering dividend growth potential as the world economy recovers, they could produce attractive total returns when purchased as part of a diverse portfolio of equities.

Relative appeal

The uncertain outlook for the world economy may mean that the yields available on dividend shares are relatively attractive. Low interest rates could be set to remain in place over the coming years as policymakers seek to offer support to the economy. The result may prove to be low income returns from assets that would normally form part of an income investor’s portfolio, such as cash and bonds.

In fact, the returns from cash and bonds could prove to be lower than inflation in some cases. This may reduce your spending power and make the task of generating a passive income more challenging over the long run.

Dividend growth potential

As well as offering a higher income return in the current year than cash and bonds, dividend shares may offer a growing revenue stream over the long run.

Certainly, many industries face an uncertain period at the present time. Factors such as rising unemployment and weak consumer confidence across many of the world’s major economies may cause challenging trading conditions that result in lower dividends than would normally be the case.

However, over the long run the track record of the world economy shows that it has been successful in overcoming its difficult periods to post positive growth. Therefore, the chances of dividend growth returning over the coming years appears to be high – even in industries that are currently facing weak operating conditions due to the coronavirus pandemic.

Dividend growth could further enhance your passive income in the long run. It may also make the difference in returns between dividend shares and other income-producing assets much wider, since low interest rates may remain in place over the next few years to stimulate the economy.

A diverse portfolio of dividend shares

Buying a range of dividend shares could be a means of reducing your risks and producing a more reliable passive income. Having exposure to different economies and a range of sectors can lower your reliance on a small number of companies from which to generate a regular passive income.

With the cost of buying shares now lower than it ever has been, it could be a good time to spread your capital across a variety of dividend shares. It could lead to high income returns, as well as dividend growth as the world economy gradually recovers

More reading

• Where I’d invest $25,000 into 3 ETFs
• The market is going long on the Afterpay share price but shorting its weaker rival
• Forget gold and Bitcoin. I’d buy cheap stocks today and hold them for 10 years
• Why I would put excess funds into ASX dividend shares instead of a savings account
• 3 exciting ASX growth shares to buy and hold until 2030

Motley Fool contributor Peter Stephens 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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