After a really rough year, investors may wonder which ASX shares could be good performers in 2023.

2022 has seen plenty of volatility amid strong inflation and rising interest rates. But, just because conditions are difficult doesn't mean there aren't opportunities to be found. In fact, the lower share prices could mean there are better-priced opportunities.

The Australian Financial Review (AFR) asked for some recommendations from a number of fund managers that pick stocks for free for the Future Generation listed investment companies (LICs) of Future Generation Investment Company Ltd (ASX: FGX) and Future Generation Global Investment Co Ltd (ASX: FGG).

Here are three of the ASX shares that were chosen.

Seek Ltd (ASX: SEK)

Seek is the operator of a large employment website in Australia. It also has a presence in a number of other countries including Singapore, Brazil, Mexico, the Philippines and Vietnam.

According to the newspaper, Kyle Macintyre, investment director at Firetrail Investments, chose Seek as an opportunity after weakness in the Seek share price. It's down 40% in 2022 to date. Growth in Seek's Asian businesses is one of the things that Firetrail is attracted to.

The fund manager noted that the labour market may be weaker, hurting advertisement volumes and revenue. However, Macintyre pointed out that Seek is the market leader and, therefore, it has "underappreciated pricing power which can offset any potential slowdown in job ad volumes, allowing Seek to grow earnings despite the tougher macroeconomic environment".

Ramsay Health Care Ltd (ASX: RHC)

Private hospital operator Ramsay Health Care is one of the world's leading businesses in the sector, with a large presence in Australia, the United Kingdom and Europe. It was close to being taken over recently, but remains listed on the ASX.

The Ramsay share price is down more than 20% from April 2022. The AFR reported that Jun Bei Liu from Tribeca Investment Partners chose Ramsay thinking the ASX share can recover. While it does have a higher level of debt, this will seem "more reasonable" as hospital admissions "normalise" and COVID impacts subside. Jun Bei Liu said:

Ramsay is now very well positioned for a rapid recovery in earnings given the backlog of patients waiting for surgery in Australia, the Nordics and especially the UK. We are confident this will support elevated surgical volumes for an extended period.

RPMGlobal Holdings Ltd (ASX: RUL)

This ASX share may be the smallest of the three names by far, but it could have plenty of potential according to James Sioud, a portfolio manager from Regal Funds Management.

The RPMGlobal share price has dropped around 20% in the year to date.

But, good commodity prices could enable ASX mining shares to spend more on their tech budgets. The fund manager also said that the company's position is boosted by "solid pricing power and switching costs". The AFR quoted Sioud, who explained:

Whilst the mining industry has adopted cloud-based software much slower than other industries, we believe this transition is inevitable. RPMGlobal has spent the last decade preparing for this structural shift, spending almost $200 million building or acquiring software products, all of which are now cloud-enabled.

Foolish takeaway

It will be interesting to see how these three ASX shares perform and whether they are able to beat the market because of the reasons these fund managers have outlined.

The post 3 ASX shares tipped for market-beating returns in 2023: experts appeared first on The Motley Fool Australia.

I believe that market crashes can be very useful times to buy ASX dividend shares.

What's going on with share markets?

At the moment the S&P/ASX 200 Index (ASX: XJO) is down more than 1% and the NASDAQ Composite fell by 3.7% overnight.

There is a resurgence of COVID-19 cases across both the USA and Europe. France has just gone into a second national lockdown until at least the end of November where French people can only leave their home for very limited reasons.

Investors are obviously concerned that businesses are going to suffer a second period of disruption to profits (which is what share prices are largely based on).

There aren't many ASX shares that are currently in the green, but there are plenty in the red such as gold miners like Westgold Resources Ltd (ASX: WGX), Ramelius Resources Limited (ASX: RMS) and Saracen Mineral Holdings Limited (ASX: SAR).

Why market crashes are a good time to buy ASX dividend shares

I think that market declines are really good opportunities to buy ASX dividend shares.

When a quality share like Xero Limited (ASX: XRO) falls, we get the opportunity to buy shares at a cheaper price. You (hopefully) benefit as the share price recovers.

But not only does the share price of an ASX dividend share fall when markets decline, but the prospective dividend yield increases as share prices decline.

For example, if business offers a dividend yield of 5% and then the share price drops 10% it will mean the trailing dividend yield will be 5.5%.

But a key question is whether the dividend (and the profit) of the business is going to be affected.

Think about an ASX dividend share like APA Group (ASX: APA). Its profit isn't going to be significantly affected by many issues, including COVID-19 in the US and Europe.

Meanwhile, a business like private hospital operator like Ramsay Health Care Limited (ASX: RHC) could be materially impacted again. Private operations, which is where Ramsay makes a lot of its profit, were already disrupted in Europe earlier in the year. Europe's second wave could see more disruption for Ramsay.

So, I don't think that every business is a buy just because it's gone down in price. Sometimes a business can decline and be expensive, whereas something could rise and be cheap.

Some ASX dividend shares worth considering

I think the ones worth thinking about are ASX dividend shares that are likely to maintain or grow the dividend even in difficult market conditions.

Some of the shares that increased their dividend earlier in the year are some of my top candidates. For example:

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) offers a grossed-up dividend yield of 3.5%.

Brickworks Limited (ASX: BKW) has a grossed-up dividend yield of 4.8%.

Rural Funds Group (ASX: RFF) has a projected FY21 distribution yield of 4.6%.

APA Group has a distribution yield of 4.7%.

WAM Leaders Ltd (ASX: WLE) has a forward grossed-up dividend yield of 8.2%.

Future Generation Investment Company Ltd (ASX: FGX) has a grossed-up dividend yield of 6.5%.

Foolish takeaway

I think each of the above ASX dividend shares offer strong income reliability over the next 12 months, even if there's a lot of volatility over the rest of the year.

There are plenty of businesses that I think look better value today compared to yesterday or a couple of weeks ago. At today's share prices I think I'm most attracted to Brickworks. It has a solid starting dividend yield and it's exposed to the recovery of the Australian construction industry whilst the dividend is backed by its defensive assets.

The post Why market crashes are useful for buying ASX dividend shares appeared first on The Motley Fool Australia.

I think it makes a lot of sense to invest in ASX shares right now and for the long-term.

It gives us the opportunity to buy plenty of quality Australia and New Zealand businesses. There are also numerous businesses that are headquartered overseas, but we can buy their shares on the ASX.

Here are some great reasons why it makes sense to invest in ASX shares right now:

Long-term benefits

The ASX share market has been one of the best performers over the past century, largely thanks to the strength of the Australian economy and the underlying businesses.

Australian shares have returned an average of around 10% per annum over the long-term. That's a solid number and compounds wealth at a very nice pace when you re-invest the dividends.

ASX shares that are part of the Australian taxation system and pay dividends also offer the potential benefit of franking credits, which is a refundable tax credit to ensure that taxpayers don't pay tax twice (once at the company level and again in the hands of individuals).

So, Australian shares have offered good returns in the past and continue to offer tax-advantaged income.  

I don't see the benefit of investing in bonds at the moment when asset prices are so high and interest rates are so low.

Strong COVID-19 and economic position

Australia is in a good position, both with COVID-19 and economically with a pretty robust GDP compared to other countries.

Economies don't exactly match the performance of business profits or share prices, but a good economy is undoubtedly a good thing for the ASX share market. A good COVID-19 position will also allow most businesses to be open and operate normally, and consumers will feel more comfortable too.

Many ASX retail-related shares have seen strong performance over the past six months such as JB Hi-Fi Limited (ASX: JBH), Eagers Automotive Ltd (ASX: APE), Wesfarmers Ltd (ASX: WES), Adairs Ltd (ASX: ADH) and Harvey Norman Holdings Limited (ASX: HVN).

Overseas investors may also see ASX shares as a safe haven compared to what's happening in Europe and the US. Particularly if the US election stirs things up.

Great investment options

I think there are a number of great ways to invest in ASX shares.

Exchange-traded funds (ETFs) aren't a bad option. There are ETFs you can buy for ASX share exposure like Vanguard Australian Shares Index ETF (ASX: VAS).

But there is too much focus on big ASX banks and resource businesses with ASX index ETFs in my opinion. Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group Ltd (ASX: ANZ), BHP Group Ltd (ASX: BHP), Fortescue Metals Group Ltd (ASX: FMG) and Rio Tinto Ltd (ASX: RIO) make up around half of the index. That's not great diversification in my opinion.

There are better ways to invest in ASX shares in my opinion. For starters, there are quality managers who invest in ASX shares which can provide exposure such as WAM Microcap Limited (ASX: WMI), Future Generation Investment Company Ltd (ASX: FGX) and Ophir High Conviction Fund (ASX: OPH).

I also think there are a number of individual ASX shares that can deliver attractive long-term returns like Pushpay Holdings Ltd (ASX: PPH), Brickworks Limited (ASX: BKW), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), A2 Milk Company Ltd (ASX: A2M), Bubs Australia Ltd (ASX: BUB), Temple & Webster Group Ltd (ASX: TPW) and Redbubble Ltd (ASX: RBL).

The post Why it makes sense to invest in ASX shares appeared first on The Motley Fool Australia.

There were a couple of names that I nearly included like Rural Funds Group (ASX: RFF) and WAM Microcap Limited (ASX: WMI). However, their share prices have run hard over the past six months, so there may be some other names that I'd want to buy first.

It's very hard to make any money from keeping cash in the bank at the moment. But I don't think ASX blue chips are the safest place to generate income. I think these ASX income shares are worth buying for dividends:

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

I think Soul Patts is the best ASX dividend share in Australia. It has been listed since 1903. 

It has a diversified portfolio of different assets because it's an investment house. It can invest anywhere and shift its portfolio to other growing areas over time. Some of the ASX shares that it owns a sizeable chunk of include: TPG Telecom Ltd (ASX: TPG), Australian Pharmaceutical Industries Ltd (ASX: API), New Hope Corporation Limited (ASX: NHC), Clover Corporation Limited (ASX: CLV), Bki Investment Co Ltd (ASX: BKI), Milton Corporation Limited (ASX: MLT), Palla Pharma Ltd (ASX: PAL) and Tuas Ltd (ASX: TUA).

The ASX income share also owns plenty of unlisted businesses in various sectors like swimming schools, resources, agriculture and financial services.

It receives a strong level of investment income from its portfolio each year. After paying for expenses, Soul Patts then pays out some of the remaining net cashflow as a growing dividend.

Soul Patts has actually increased its dividend every year since 2000 (including through the worst of COVID-19) which is the best record on the ASX. I like the defensive nature of Soul Patts, but it has also managed to outperform the index in the short-term and the long-term.

At the current Soul Patts share price it offers a grossed-up dividend yield of 3.3%.

Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is another quality ASX income share.

It's a listed investment company (LIC) which has investments across around 20 top fund managers that invest in ASX shares – those managers work for free so that Future Generation can donate 1% of its net assets to youth charities each year. There are no management fees or performance fees when it comes to Future Generation.

Its gross portfolio has outperformed the S&P/ASX 200 All Ordinaries Accumulation Index over the past month, six months, twelve months, three years, five years and since inception in September 2014. Over the past year Future Generation's portfolio has outperformed by more than 10%.

The ASX income share can use its investment gains to pay a steadily-growing dividend, which it has done since 2015.

At the current Future Generation share price it offers a trailing grossed-up dividend yield of 6.3%.

Brickworks Limited (ASX: BKW)

Brickworks is primarily known as a building products business in Australia. It sells a variety of products like bricks, paving, masonry, roofing and precast.

It also has a strong market presence in the north east of the US after three targeted acquisitions. It's now the market leader in places like New York. I think Brickworks is well placed to benefit when the US construction industry returns to normal operations after COVID-19.

Brickworks also has two other assets. It owns around 40% of Soul Patts and it also has a 50% stake of an industrial property trust alongside Goodman Group (ASX: GMG). Goodman is a high quality operator of industrial estates, one of the best in the world. The trust will soon have Amazon as a key tenant at a large distribution warehouse that it's constructing.  

The building products business hasn't cut its dividend for over 40 years. That's very reliable. It's one of the main reasons why I think Brickworks is must-have ASX income share.

It's the above two assets' cashflow which completely fund Brickworks' dividend, it doesn't need the building products divisions to do well every single year to keep growing the dividend.

At the current Brickworks share price it offers a grossed-up dividend yield of 4.4%. I think that's a good starting yield.

The post 3 must-have ASX income shares for your portfolio appeared first on The Motley Fool Australia.

I can totally understand why people want to grow their dividend income because of what's going on right now. COVID-19 has caused a lot of uncertainty. The great thing about ASX shares is that they are among the best businesses in their industry, perhaps the best in the country. You can usually rely on them for a decent flow of dividends. 

Whilst March 2020 and April 2020 certainly looked rough with the rapid spread of the coronavirus and the restrictions which caused many parts of the country and economy to come to a standstill.

But the following six months has shown why it's important to be invested in shares. The recovery by the share market has just been extraordinary.

How to get started replacing your wage with ASX dividend shares

Over the long-term I think that shares, such as ASX shares, have proven that they can generate great returns for investors.

Most businesses make a profit each year and many of them pay out a portion of that profit out as a dividend (or distribution). Businesses can retain some of the profit to re-invest back into the business for more growth.

To get started you just have to start putting money to work into the share market. Pick a broker – there are plenty to choose from like banks or low-cost providers – then add some money and start investing.

There are lots of good choices where you can start your investment journey. You don't have to necessarily start with ASX dividend shares. Picks like Future Generation Investment Company Ltd (ASX: FGX), Future Generation Global Invstmnt Co Ltd (ASX: FGG), Betashares Global Quality Leaders ETF (ASX: QLTY), iShares S&P 500 ETF (ASX: IVV) and Vanguard Msci Index International Shares Etf (ASX: VGS) could be good places to start.

There are lots of calculators to help you work out how much money you may need to add to your portfolio to grow your portfolio to the size you need replace your dividend income. I think Moneysmart's is one of the best calculators out there.

How big does your portfolio need to be?

The necessary size of your portfolio will depend on how much income you're trying to replace and the dividend yield of your portfolio.

For example, if you're trying to replace $40,000 of wage income then a 4% dividend yield would require a $1 million portfolio.

If you had a portfolio with higher yielding ASX dividend shares, say a 6% yield, but you wanted to replace $100,000 of income then you'd need a $1.67 million portfolio.

I'm not going to name every single possible combination, but you get the idea.

For me, I'd be aiming for around a $1 million portfolio with a 5% yield to generate $50,000 of gross income before tax. If I were going to retire, I'd expect not to have to pay certain expenses – like transportation (to work), or mortgage costs because I'd aim to have paid off the mortgage by the time I retire. That would mean I could live off a lower annual income, meaning I'd be okay with a 'smaller' portfolio.

Which ASX dividend shares are worth buying?

It's getting quite hard to find nicely-priced, good quality ASX dividend shares because of how strong the share market has run and how low interest rates are, which has pushed up share prices.

But here are some examples, many of which are in my portfolio:

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) has a grossed-up dividend yield of 3.3%.

Brickworks Limited (ASX: BKW) has a grossed-up dividend yield of 4.2%.

Rural Funds Group (ASX: RFF) has a FY21 distribution yield of 4.9%.

WAM Microcap Limited (ASX: WMI) has a grossed-up dividend yield of 5.2%.

Future Generation Investment Company (FGX) has a grossed-up dividend yield of 6.3%.

Australian United Investment Company Ltd (ASX: AUI) has a grossed-up dividend yield of 6.3%.

The post How to replace your entire wage with ASX dividend shares appeared first on The Motley Fool Australia.

I've got some ideas for where I'd invest $10,000 into ASX dividend shares.

Having cash in the bank just doesn't earn the same amount of interest as it used to. That's because Australia's official interest rate is now just 0.25%. I think the answer is to put some money into the share market into businesses that generate profit and pay dividends. 

Here are some of the best ASX dividend shares that I'd be willing to invest in right now:

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) – $3,500

I think that Soul Patts is the best ASX dividend share that Aussies can buy. It has been listed since 1903 and it has paid a dividend every year since then, including through the world wars.

The investment house owns a variety of different listed and unlisted businesses. It has shares in things like TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Clover Corporation Limited (ASX: CLV) and Palla Pharma Ltd (ASX: PAL). It also has unlisted investments like resources, swimming schools, property and financial services.

Soul Patts has grown its dividend every year for the past two decades. It's quite reassuring knowing your investment is likely to increase the dividend this year.

At the current Soul Patts share price it offers a grossed-up dividend yield of 3.5%.

Rural Funds Group (ASX: RFF) – $2,500

Rural Funds has been one of the most consistent ASX dividend shares over the past five years. Management aim to grow the distribution by 4% every year, and it has achieved that. It's a solid growth rate when it's compounded year after year.

The farmland real estate investment trust (REIT) owns various farm types including almonds, cattle, macadamias, vineyards and cropping (sugar and cotton) which are leased to high-quality tenants.

Rural Funds manages to grow its distribution consistently because rental indexation is built into the contracts. Some contracts see the rental income grow by a fixed 2.5% per annum. Other contracts have rental growth linked to CPI inflation. It has long rental contracts, so its distribution growth is almost locked in. It also benefits from investing in productivity improvements at its farms.

At the current Rural Funds share price it has a FY21 distribution yield of 5%. That's a solid yield for an ASX dividend share.

WAM Microcap Limited (ASX: WMI) – $1,500

I think that WAM Microcap is one of the best listed investment companies (LICs) on the ASX. The purpose of a LIC is to invest in other shares on behalf of shareholders.

WAM Microcap looks to invest in businesses with market capitalisations under $300 million at the time of acquisition.

It has done extremely well since the bottom of the COVID-19 crash. Since 23 March 2020 the WAM Microcap share price has grown 92%.

The ASX dividend share is steadily growing its dividend and it has also paid a special dividend in each of the last three financial years. That's a great income record.

The LIC's investment team are very effective at finding those opportunities. Returns won't also be good as the last six months, but I think it can produce total shareholder returns that beat the market over the long-term.

At the current WAM Microcap share price it offers an ordinary grossed-up dividend yield of 5.25%.

Future Generation Investment Company Ltd (ASX: FGX) – $2,500

Future Generation is another LIC, but it's quite different.

It invests in the funds of fund managers who work for free so that Future Generation can donate 1% of its assets each year to youth charities.

All of those funds offer a lot of diversification. Future Generation's portfolio has outperformed the ASX since inception yet it's trading at a 9% discount to the net tangible assets (NTA) at the end of August 2020.

Future Generation is steadily growing its dividend and it currently has a grossed-up dividend yield of 6.5%.

The post Where I'd invest $10,000 into ASX dividend shares appeared first on The Motley Fool Australia.

I think that investing in ASX shares is a great idea if you're wondering where to start with $500.

You don't need $50,000 to start investing in shares. You can start with $1,000, or even half that amount. It also costs very little to do a transaction. Buying (or selling) a property usually costs many thousands of dollars.

But which share should you buy? There are lots of different things you can invest in. These days one of the best ways to get started is with an exchange-traded fund (ETF) which allows you to invest in lots of different shares through a single investment.  

But the ASX share that I'm going to tell you about in this article is a listed investment company (LIC).

A LIC is somewhat similar to an ETF. Most LICs usually provide a diversified portfolio of shares, just like an ETF. However, LICs don't just follow an index – the portfolios are constructed by managers. Some of those managers can outperform the index over the long-term (and plenty don't).

Here's my ideas for $500:

Future Generation Investment Company Ltd (ASX: FGX)

As I said, this is a LIC. But there are a few key differences.

The ASX share doesn't charge any management fees or performance fees. Indeed, it hardly has any costs at all because of its philanthropic nature. It donates 1% of its net assets to youth charities each year. That's where the 'Future Generation' part of the name comes in.

It doesn't invest in individual businesses like a normal LIC does. Instead, Future Generation is invested in around 20 funds of different fund managers that invest in ASX share. The managers that it's invested in include: Bennelong, Paradice, Regal, Eley Griffiths and Wilson Asset Management. The fund managers I mentioned represent almost half of Future Generation's overall portfolio.

Each of those funds represent a portfolio shares, which could mean Future Generation may be invested in hundreds of different ASX shares. I think that's great diversification. It probably provides better diversification than an ETF like BetaShares Australia 200 ETF (ASX: A200).

Performance

When you look at the latest performance update from 31 August 2020, Future Generation shows outperformance of the S&P/ASX All Ordinaries Accumulation Index over the past month, six months, year, three years, five years and since inception in September 2014.

Indeed, since inception the Future Generation gross portfolio return has beaten the index by an average of 2.6% per annum.

Good diversification and outperformance is a nice combination.

Dividend

LICs can choose to pay out a dividend from its investment performance. Future Generation aims to pay out a slightly higher dividend each year, if the profit reserve allows.

The ASX share currently has an annualised dividend of 5.2 cents per share. That amounts to a grossed-up dividend yield of 6.5% at the current Future Generation share price.

Is the ASX share a good buy today?

One of the most important things to know about LICs is that they can trade at discounts or premiums to their underlying asset value. In other words, sometimes you can buy $0.90 of assets for $1 of shares. Or sometimes you have to pay $1.10 for $1 of assets.

At the time of writing Future Generation has a share price of $1.14. This compares to pre-tax net tangible assets (NTA) of $1.2517 per share. That means it's trading at a discount of 9% to August's NTA. The NTA may have grown since then.

When you consider the diversification, the outperformance, the dividend yield and the NTA discount, I think Future Generation is a great ASX share investment for $500 right now.

The post Where I'd invest my first $500 into ASX shares appeared first on The Motley Fool Australia.

It is totally possible for people to generate $65,000 in annual dividends at some point in their life thanks to ASX dividend shares.

Why $65,000?

I think producing an average wage in the form of dividends from ASX shares would be great.

According to statistics produced by the Australian Bureau of Statistics (ABS), the May 2020 numbers indicated that the average annual income for an Aussie is almost $68,000. COVID-19 may have influenced that number, so I thought $65,000 would be a slightly more realistic target to write about.

When we get older, hopefully we'll be able to eliminate some expenses like a house payment and education debt, meaning we wouldn't need as much income to live.

How much do you need to get $65,000 in dividends each year?

The dividend yield of your portfolio will largely decide how big your portfolio needs to be for the income goal. If you had a 1% dividend yield then your portfolio would have to be $6.5 million.

A 1% yield is very low, even if you aim for a growth portfolio. If your portfolio had a 3% yield then you'd need a portfolio worth $2.17 million.

If you aimed for a $1 million portfolio then you would need a dividend yield of 6.5%. Some ASX dividend shares may be able to provide that, but it's hard to find good shares with good yields. COVID-19 has made it particularly difficult with plenty of dividend cuts from various ASX blue chips.

How do you get there?

Well a portfolio of between $1 million to $2 million would take quite a while to build. It would take a lot of saving, investing and compound growth. Franking credits help too. 

Moneysmart has a great compound interest calculator that helps you play around with numbers to see how much you'd need to invest and how long it would take.

As an example, if you invested $1,000 a month into ASX shares and your portfolio compounded at 10% a year then you'd have $1.327 million after 25 years. You'd get to $1 million in under 23 years.

If you're a double income household then it's probably easier to invest $1,000 a month (or more), but I think investing $1,000 a month is possible for a lot of people with a frugal mindset and decent earnings. The less you earn the more frugal you'd have to be to make it work. It's particularly difficult during this COVID-19 era.

What are good ASX dividend shares?

There are a number of ASX dividend shares that I really like. However, the record low interest rates have pushed up asset prices and caused dividend yields to fall.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) has a grossed-up dividend yield of 3.5%.

Brickworks Limited (ASX: BKW) has a grossed-up dividend yield of 4.3%.

Future Generation Investment Company Ltd (ASX: FGX) has a grossed-up dividend yield of 6.6%.

WAM Microcap Limited (ASX: WMI) has a grossed-up dividend yield of 5.5%.

APA Group (ASX: APA) has a distribution yield of 4.6%.

Rural Funds Group (ASX: RFF) has a FY21 distribution yield of 4.75%.

Vitalharvest Freehold Trust (ASX: VTH) has a distribution yield of 6%.

WAM Leaders Ltd (ASX: WLE) has a grossed-up dividend yield of 7.9%.

As you can see, many of the above names have a yield lower than 6.5%. Higher yields can be riskier, they may be more likely to cut their income payments in times of difficulty.

I think that Soul Patts, Brickworks, Future Generation and WAM Microcap are among the highest-quality ASX dividend shares. I like them for their reliability, the regular dividend growth and the diversification.

It may take a bit longer to reach $65,000 of annual income with lower yielding shares, but I'd feel more secure and they may have more capital growth potential. Total returns are important.

The post How to create a yearly income of $65,000 in dividends appeared first on The Motley Fool Australia.

I think that there are some good listed investment companies (LICs) out there that are worth investing in for high dividend yields of over 6.5%.

That sounds more attractive to me than not earning anything in the bank because of low interest rates. 

What is a LIC?

A LIC is a company which invests in other assets or shares on behalf of shareholders. There are plenty of LICs on the ASX which are managing money for shareholders.

Some of them are very large and have been around for decades like Australian Foundation Investment Co.Ltd. (ASX: AFI) and Argo Investments Limited (ASX: ARG) which invest in ASX blue chips.

There are other LICs that focus on small caps and can be quite volatile like WAM Microcap Limited (ASX: WMI).

Plenty of LICs offer pretty good dividend yields, but some offer even bigger yields than most:

WAM Leaders Ltd (ASX: WLE)

WAM Leaders is a LIC operated by Wilson Asset Management (WAM). The lead portfolio manager of WAM Leaders is Matthew Haupt who has managed the portfolio of large caps over the past few years.

On the dividend side of things it has a high dividend yield of 8.1%, grossed-up, at the current WAM Leaders share price. That yield includes the forward dividend guidance of a 3.5 cents per share payment.

At 31 August 2020 the LIC's had delivered a gross return (before fees, expenses and taxes) of 10.6% per annum since May 2016, outperforming the S&P/ASX 200 Accumulation Index by 3.5% per annum. That's solid outperformance. Over the prior 12 months its gross outperformance had been 10.7%.

It's this strong level of performance (and outperformance) that allows the LIC to pay a solid dividend.

Large caps are generally seen as safer and more stable, which allows WAM Leaders to invest confidently. While many large cap ASX shares cut their dividends because of the pandemic, WAM Leaders has been able to still grow its dividend.

Naos Emerging Opportunities Company Ltd (ASX: NCC)

This LIC has a very high dividend yield. When grossed-up, it offers a yield of 10.5% at the current Naos Emerging Opportunities share price.

It aims to invest in small cap ASX shares with market capitalisations under $250 million. Many investors don't venture into that area of the market, so there can be some exciting opportunities to be found at good prices.

Some of its current investments include Experience Co Ltd (ASX: EXP), Saunders International Ltd (ASX: SND) and Contango Asset Management Ltd (ASX: CGA).

Industrial small cap shares have found things tough in 2020 with the impacts of COVID-19. However, despite that, Naos Emerging Opportunities can still point to an average return per annum of 10.1% (after expenses but before fees) since inception in February 2013.

The high dividend yield seems fairly safe for the next few years as the LIC has maintained of grown its dividend very year since FY13. It has a profit reserve of 32.7 cents per share, which amounts to about four years at the current dividend level.

Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is the final LIC in this article. It has increased its dividend each year over the past five years, including through this difficult COVID-19 pandemic period.

There are two main things to know about Future Generation. It donates 1% of its net assets to youth charities, which is particularly useful in this COVID-19 era.

Future Generation offers excellent diversification because it's invested in around 20 funds of different Australian fund managers who work for free. Each of those portfolios probably represents at least 10 holdings. So there are lots of underlying shares for good diversification. 

Future Generation has a fairly high dividend yield, it has a grossed-up yield of 6.6%.

The LIC has delivered outperformance compared to the S&P/ASX All Ordinaries Accumulation Index. Over the past three years Future Generation's gross portfolio return has beaten the index by an average of 2.1% per annum.

Foolish takeaway

All three of these LICs offer high dividend yields, which is nice for income investors. I'd be happy to buy all three at the current prices, though I think I'd prefer Future Generation because of the attractive net tangible asset (NTA) discount of around 11%.

The post 3 LICs with high dividend yields of over 6.5% appeared first on The Motley Fool Australia.

I believe there are some good star ASX income shares that could be worth holding in a dividend portfolio.

Cash in the bank is hardly earning anything any more because of how low Australia's official interest rate is.

But there are plenty of ASX income shares that offer good starting yields with the potential for longer-term growth.

Here are some businesses which look good value and could deliver good total returns in 2021:

Brickworks Limited (ASX: BKW)

Brickworks released its FY20 result today. For ASX income share investors, the key statistic was that the total FY20 dividend was grown by 4% to 59 cents per share, after a 3% increase to the final dividend to 39 cents per share.

At the current Brickworks share price that means it offers a grossed-up dividend yield of 4.5%. Brickworks hasn't cut its dividend for 44 years. That's a really strong record.

What was pleasing about the FY20 result was that Brickworks said that orders and sales have increased in September across most of its Australian building products businesses. That suggests that Brickworks could do well in FY21.

I also liked that Brickworks' share of net assets of its property trust (which it owns 50% of) increased by $94 million and the net trust income rose by 15% to $30 million.

Amazon and Coles Group Limited (ASX: COL) will soon be major tenants at two large warehouses being built by the property trust.

I also believe that Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) will continue to be a good long-term investment for Brickworks.

Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is a listed investment company (LIC) which was set up as a really good philanthropic company.

It donates 1% of its net assets each year to youth charities. I think that's a really good initiative, the future of Australia will be decided by the younger Australians of today. Some of them may need help, particularly with what's going on with COVID-19.

But it's not just set up as a charity. As a LIC, it aims to make investment returns for investors. The job of a LIC is to invest in other assets on behalf of shareholders.

The ASX income share is invested in the funds of around 20 different Australian fund managers that invest in ASX shares. Some of the managers involved are: Bennelong, Paradice, Regal, Eley Griffiths and Wilson Asset Management.

Those investment managers work for free – no management fees and no performance fees. They work for free so that Future Generation can make its annual donation.

Investment returns made by a LIC can be turned into steady dividends for shareholders. Future Generation has grown its dividend each year for the past five years. Its gross portfolio return has also outperformed the S&P/ASX All Ordinaries Accumulation Index by 2.6% per annum since inception in September 2014.

At the current Future Generation share price it offers a grossed-up dividend yield of 6.6%.

Vitalharvest Freehold Trust (ASX: VTH)

Vitalharvest is an agricultural real estate investment trust (REIT) that has gone through a tough time over the past year or two due to the drought and a few specific issues at some of its farms.

The farm landlord benefits from the success of the farms that it leases to Costa Group Holdings Ltd (ASX: CGC) with an 25% annual profit share from those farms.

I think those farm-specific issues could be resolved by 2021, which would be a boost for variable rent and overall profitability in 2021.

The ASX income share's distribution could rise in 2021 with a return to normal conditions. The new manager is also looking for food-related property investments that could provide more consistent rental income.

I think it could be one of the best-performing REITs over the next 15 months. At the current share price it's trading at a 14.3% discount to the net asset value (NAV) at 30 June 2020.

The post 3 star ASX income shares for 2021 appeared first on The Motley Fool Australia.

Do you want to generate $1,000 a month in dividends? I believe it's totally possible for your portfolio. You just have to remained disciplined and choose the right ASX shares.

Dividends are great

I think that dividends from ASX shares are great. It's wonderful that we can get paid by our investments for no effort, except the initial investment.

Businesses can pay out dividends (or distributions) from their annual profits and retain some of the profit to re-invest for more growth.

I think it's a good idea for most Australian companies to pay out a dividend. It's nice for shareholders to receive cash payments just being part owners of the business. Some high growth businesses may need all of the available capital to fund growth, but larger businesses don't need to retain all of their cashflow. 

Franking credits

Australian companies get particular advantages for making taxable profit in Australia. The country does have a relatively high company tax rate, however all corporate income tax paid can be used as a refundable tax credit (called franking credits) for Australian tax residents. Franking credits reduce the taxes owed by taxpayers who receive dividends. For some low income earners and retirees it can mean the entire franking credit amount being refunded to investors when they do their tax return.

Franking credits can turn a $70 dividend into a $100 grossed-up dividend after the tax return is completed.

Which ASX dividend shares are good ideas?

Different investors will have different opinions about which ASX shares are good ideas for income.

Some people are just attracted to large ASX blue chips which are seemingly safe dividend ideas like Wesfarmers Ltd (ASX: WES), Coles Group Limited (ASX: COL) and BHP Group Ltd (ASX: BHP).

However, as this COVID-19 period has shown, I don't think some businesses can be relied on as dividend ideas because they're not that defensive.

Below are some of my favourite ideas. Before I get into it, I just want to tell you that a listed investment company (LIC) is a company which invests in other businesses on behalf of shareholders. Here are my ideas for an ASX dividend share portfolio:

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) has a grossed-up dividend yield of around 4%. It's a diversified investment conglomerate.

Brickworks Limited (ASX: BKW) has a grossed-up dividend yield of 4.4%. It is a diversified property business.

Future Generation Investment Company Ltd (ASX: FGX) has a grossed-up dividend yield of 6.6%. It's a philanthropic, diversified LIC.

WAM Microcap Limited (ASX: WMI) has a grossed-up dividend yield of 5.6%. It's a LIC which invests in small caps.

Rural Funds Group (ASX: RFF) has a FY21 distribution yield of 4.7%. It's a farmland real estate investment trust (REIT).

Magellan Global Trust (ASX: MGG) aims for a 4% distribution yield. It's a globally-focused listed investment trust (LIT).

WAM Leaders Ltd (ASX: WLE) has a grossed-up dividend yield of 8%. It's a LIC which focuses on large cap ASX shares.

If you bought an equal amount of each of the above ASX dividend shares your portfolio would be very diversified and it would have a grossed-up dividend yield of 5.3%.

What size portfolio would you need with a 5.3% yield to make $1,000 a month in dividends?

The dividend yield of your portfolio dictates how much income you'd make from it. If you had a $100,000 portfolio with a 10% dividend yield then you'd receive $10,000 of dividends a year.

If you had a $200,000 portfolio with a 5% yield it would pay $10,000 a year.

You'd need a portfolio worth $226,415 with a 5.3% grossed-up yield to get $1,000 a month, or $12,000 a year.

Of course, not many people have almost a quarter of a million dollars sitting around in cash to invest into shares. It takes saving, investing and compounding to reach that type of wealth. According to the Moneysmart calculator, it would take less than 11 years by investing $1,000 a month into ASX shares to reach a portfolio size of $230,000 if it compounded at 10% a year.

Of course, your portfolio could reach $230,000 faster if you invested more per month or identified investments better than the overall market (which is still a good wealth builder).

The post How to generate $1,000 a month in dividends appeared first on The Motley Fool Australia.

I think September is a great time to buy ASX dividend shares.

We've just seen most of the results in the August 2020 reporting season. So we now have good idea about how businesses performed through the tough COVID-19 period.

Businesses that can grow (or maintain) the dividend during these times are truly great ASX dividend shares. But they also need to be at a good price to buy them today.

That's why I'm personally interested in these two ASX dividend shares in September:

Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is a listed investment company (LIC). I think it's a special LIC because it doesn't have any management fee costs and instead it donates 1% of its net assets to youth charities each year.

What does it invest in? Future Generation invests into the funds of other fund managers which buy ASX shares. Those fund managers work for free to enable the donations to be paid.

The useful thing about LICs is that they can generate investment returns and then pay out those profits as a steady (and growing) dividend.

Looking at Future Generation's gross portfolio performance over the past five years, it has outperformed the S&P/ASX All Ordinaries Accumulation Index by 2% per annum.

It has increased its dividend every year since 2015 when it first started paying a dividend. It hasn't been fast growth, but the steady income growth has been attractive.

At the current Future Generation share price the ASX dividend share has a grossed-up yield of 6.9%. Aside from the nice yield, I also like Future Generation because it's trading at a 8.3% discount to the net tangible assets (NTA) at July 2020. Buying a LIC at a discount with long-term outperformance is attractive to me.

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

I think that Soul Patts is the gold standard for dividends on the ASX. I believe that every Aussie income investor should have Soul Patts in their portfolio.

It's the only business on the ASX to have increased its dividend every year over the past two decades.

How has it managed that? Well, it's an investment conglomerate with a diverse portfolio with largely defensive businesses. Its holdings like TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW) and New Hope Corporation Limited (ASX: NHC) send dividends to Soul Patts which it can then pay to shareholders, whilst retaining a portion for investing in new opportunities.

The ASX dividend share's annual cashflow benefits compounding from both the retained net cashflow it invests into new businesses as well as its existing holdings growing their dividends.

Soul Patts has paid a dividend every single year since it listed in 1903. That means dividends have continued to flow to shareholders through world wars, the Spanish Flu, the 1930s depression and so on.

I like that Soul Patts tries to identify investment opportunities that can keep growing profit whether times are good or bad. For example, I think swimming schools – one of Soul Patts' private investments – would be a reliable business even during a non-pandemic recession because parents would still want their children to learn how to swim.

Over time, I think Soul Patts can grow its dividend for many years into the future because it makes long-term investments itself. The ASX dividend share can steadily shift its portfolio to new opportunities as they arise. It will seemingly soon be invested in regional data centres, which is a great long-term growth area.

At the current Soul Patts share price it offers a grossed-up dividend yield of 4.15%.

Foolish takeaway

I really like both of these ASX dividend shares, that's why I own them in my portfolio. They offer solid starting dividends yields, they have a history of dividend growth and have good portfolio diversification. Future Generation is probably better for people who want a higher starting yield, but I'd rather buy Soul Patts for its long-term growth record and steady capital growth.

The post 2 ASX dividend shares I'd buy in September appeared first on The Motley Fool Australia.

I think there are some ASX income shares which are must-haves for any investor that is focused on generating dividend income.

The official RBA interest rate is now just 0.25%. That has caused the income we can get from bank saving accounts to drop significantly.

I think there are some ASX shares that should be in most income investor portfolios:

WAM Microcap Limited (ASX: WMI)

WAM Microcap is a listed investment company (LIC). I really like LICs as ASX income share ideas.

When you limit yourself to just operating businesses that have a higher dividend yields then you may find that plenty of them offer average (or even inferior) total returns because they have low growth potential (and a low price/earnings ratio) and/or they have a high dividend payout ratio with limited re-investment opportunities.

LICs can invest in growth shares (or anything else), make capital gains and then pay out some of those returns as a smoothed (and hopefully growing) dividend.

WAM Microcap is one of the best-performing LICs. Since inception in June 2017, WAM Microcap portfolio's gross return was 17.8% per annum. That's before expenses, fees and taxes – so the net return has been a bit less. However, the gross portfolio return was 11.6% better per annum than the S&P/ASX Small Ordinaries Accumulation Index. That's great outperformance.

The ASX income share has steadily increased its dividend since FY18 and it has also paid a special dividend each year too.

Excluding special dividends, WAM Microcap offers a grossed-up yield of 5.8% at the current WAM Microcap share price.

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

In terms of dividend reliability, I think Soul Patts could be the best ASX income share around.

Soul Patts has grown its dividend every year since 2000. No other ASX share has a record as good as that. Soul Patts has actually paid a dividend every year since it listed in 1903, including through wars and other recessions.

The investment house owns large positions in a number of different shares including TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Australian Pharmaceutical Industries Ltd (ASX: API), New Hope Corporation Limited (ASX: NHC), Milton Corporation Limited (ASX: MLT) and Bki Investment Co Ltd (ASX: BKI).

Most of Soul Patts' investments pay annual dividends to Soul Patts each year. The ASX income share can then pay out most of those dividends to its own shareholders, after paying for expenses. It retains about a fifth of that net cashflow to invest into more opportunities.

At the current Soul Patts share price it offers a grossed-up dividend yield of 4.2%.

Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is another LIC, but this one is very different to WAM Microcap. But I think it could also be a good ASX income share pick.

It invests in the funds of fund managers that invest in ASX shares. Its investment choices are meant to be into the best investment managers in Australia.

But those fund managers work for free for Future Generation so that the LIC can donate 1% of its net assets per annum to youth charities. That means no management fees and no performance fees. These donations are particularly important during times like this COVID-19 period.

Since inception in September 2014, the Future Generation portfolio's gross return has been 2.2% per annum better than the S&P/ASX All Ordinaries Accumulation Index. That's before expenses, fees and taxes.

Some of its biggest fund manager allocations are with Bennelong, Paradice, Regal, Eley Griffiths and Wilson Asset Management. Future Generation is invested in lots of shares through the underlying funds, so Future Generation has great diversification. 

At the current Future Generation share price it offers a grossed-up dividend yield of 6.8%.

Foolish takeaway

I think all three of these ASX income shares are great options for dividends. At the current prices I'd probably go for Soul Patts first with its reliable dividend – WAM Microcap appears to be trading at bit of a premium to its net tangible assets (NTA) now.

The post 3 must-have ASX income shares for your portfolio appeared first on The Motley Fool Australia.

There are a number of ASX shares that could be good to invest $500 into.

Plenty of beginner investors may be well suited to an exchange-traded fund (ETF) like BetaShares Global Quality Leaders ETF (ASX: QLTY) and Vanguard MSCI Index International Shares ETF (ASX: VGS).

But I think there are ASX shares that could be better choices than that. Here are two options:

Growth: Bubs Australia Ltd (ASX: BUB)

The best way to beat the market over the longer-term is with ASX growth shares. Smaller businesses have much more growth potential than large blue chips which are already mature businesses.

It's much easier to double profit from $10 million to $20 million than it is for a blue chip to grow profit from $1 billion to $2 billion.

Bubs is one of those ASX shares that I think has great growth potential for a few key reasons.

Bubs is an infant formula business, which specialises in goat milk products. But it also sells other products like baby food and organic grass-fed cow milk infant formula. The company also recently announced the launch of Vita Bubs – a range of vitamin and mineral supplements.

It's the international growth and rising margins which particularly excite me. A2 Milk Company Ltd (ASX: A2M) has shown how overseas growth can really add to the bottom line.

In FY20 the ASX share grew its total revenue by 32% to $62 million. The FY20 fourth quarter showed Chinese direct sales increase by 26% and other export market sales increased by 71%. Asia alone is a huge market which Bubs can tap into over many years.

Bubs has reported that its gross profit margin has steadily grown over the past few results to 24%. I think it can grow much higher considering the infant formula gross profit margin is around 40% – and infant formula is becoming a larger part of the business.

Over the next five or ten years, I think Bubs could become a much larger business.

Dividends: Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is a listed investment company (LIC) with a major difference. There are no management fees or performance fees involved with this ASX share. Most LICs have fund managers that charge fees.

Future Generation is actually invested in the funds of around 20 fund managers that invest in ASX shares. These fund managers work for free so that Future Generation can donate 1% of its net assets each year to youth charities. Hence the name 'Future Generation'.

As a LIC, Future Generation has the option of paying out a lot of the underlying investment returns as a growing dividend to shareholders. That's exactly what Future Generation has been doing. In the recent FY20 half-year result it increased its interim dividend by 8.3%.

At the current Future Generation share price it offers a grossed-up dividend yield of 6.9%. I think that's a solid yield in the current environment where the RBA interest rate is so low. I'd happily buy it for yield.

During the six months to 30 June 2020 the ASX share's gross portfolio return outperformed the S&P/ASX All Ordinaries Accumulation Index by 3.3%. Over the prior 12 months the gross portfolio return was 6% better than the index. That's a solid outperformance during COVID-19 in my opinion.

At the current Future Generation share price it's valued at a 7% discount to the June 2020 net tangible assets (NTA) per share. There's a fair chance the NTA will have risen since then.

Foolish takeaway

I think both of these ASX shares would be a solid long-term investment with $500. At the current prices I'd probably go for Bubs as it has fallen back a bit since its FY20 fourth quarter update. However, Future Generation offers a lot of attractive diversification considering it's a fund of funds.

The post 2 ASX shares you could invest $500 into appeared first on The Motley Fool Australia.

The listed investment companies (LICs) of Future Generation Investment Company Ltd (ASX: FGX) and Future Generation Global Invstmnt Co Ltd (ASX: FGG) have grown their dividends in the June 2020 results.

The Future Generation companies are LICs with two main goals. The first goal is to donate 1% of net assets each year to youth charities and youth mental health charities. They can do this by charging shareholders no management fees. The fund managers that the LICs invests with also don't charge management fees – they work for free. The other goal is to generate returns for shareholders. 

Future Generation Australia HY20 result

Future Generation Australia reported that over the six months to 30 June 2020, its portfolio's decline of 7.1% outperformed the S&P/ASX All Ordinaries Accumulation Index by 3.3% (the index dropped 10.4%) which included the COVID-19 crash.

Over the past 12 months the LIC's negative 1.2% return outperformed the index by 6%. Since inception the Future Generation Australia portfolio has grown by an average of 7.3% per annum, outperforming the index by 1.8% per annum. The outperformance was delivered with less volatility.

The board decided to increase its interim dividend by 8.3% to 2.6 cents per share. The LIC had an estimated profit reserve of 8.6 cents per share at 30 June 2020. The LIC was able to fund this dividend announcement thanks to the profit reserve. The Future Generation share price is up almost 3% in reaction to the announcement.

At the current Future Generation Australia share price of $1.05, it offers a fully franked dividend yield of 5% or 7% when grossed-up to include the franking credits.

Some of the charities currently supported include: Act For Kids, Australian Children's Music Foundation, Australian Indigenous Education Foundation, DEBRA Australia, Diabetes Kids Fund, Giant Steps, Lighthouse Foundation, Mirabel Foundation, Raise Foundation, United Way Australia, Variety and Youth Off The Streets.

This year the LIC will invest $4.8 million into charities, which will bring the total charitable donations since inception to $21.4 million.

At the current Future Generation Australia share price it's trading at a 8.5% discount to the net tangible assets (NTA) at 30 June 2020.

Future Generation Global HY20 result

Future Generation Global reported that its portfolio's return of 0.3% outperformed the MSCI AC World Index's (AUD) return of negative 4.4% by 4.7%. Over the past year the global LIC's 7.5% portfolio return outperformed the index by 3.6%.

The leadership was pleased to preserve shareholder capital in a highly volatile period.

Since inception, the LIC's average portfolio return per annum of 9.2% was 0.3% per annum better than the index.

The board of Future Generation Global announced a 33% increase to its dividend to 2 cents per share. This was achieved by tapping into the profit reserve as well as the solid outperformance achieved in recent times.

The Future Generation Global share price is up almost 1% in reaction to the announcement.

If the LIC were to pay 2 cents per share every 12 months going forwards, it would have a grossed-up dividend yield of 2.3% based on the current Future Generation Global share price.

Some of the current youth mental charities currently supported are: Black Dog Institute, Brain and Mind Centre, Butterfly Foundation for Eating Disorders, Kids Helpline, Orygen – the National Centre of Excellence in Youth Mental Health, ReachOut Australia, SANE Australia and Youth Focus.

This year the global LIC will invest $5.7 million, which will bring total donations since inception to $19.7 million.

At the current Future Generation Global share price it's trading at a 17% discount to the June 2020 NTA.

Foolish takeaway

The share prices of both LICs have risen in reaction this result. Outperformance and an increased dividend have been welcomed in these difficult times and investors clearly thought that both were opportunities after today's result announcements. 

The post Future Generation LICs grow dividends in June result appeared first on The Motley Fool Australia.

Listed investment companies (LICs) are a great option to invest in for big dividend yields in my opinion.

What's a LIC?

A LIC is a company just like any other. LICs provide half-year and annual reports, they have boards of directors and so on.

Normal operating companies might be a retailer, a bank, a tech company or something like that. The main difference is that LICs invest in other businesses on behalf of shareholders.

LICs make profit from investment returns. That's a combination of capital growth and the dividends the LICs receives from its investments.

The boards of LICs can choose to pay a smoothed dividend for investors with its total returns.

Here are three ideas with big dividend yields of more than 7%:

WAM Leaders Ltd (ASX: WLE)

WAM Leaders is a LIC run by Wilson Asset Management (WAM). The LIC targets large cap ASX shares. But you shouldn't think of it as a passive investment vehicle like an exchange-traded fund (ETF). It's quite active, switching between positions to try to make the best profit it can.

Over the past year its portfolio returned 2.7% before fees, expenses and taxes, outperforming the S&P/ASX 200 Accumulation Index by 10.4%. That's impressive in my opinion.

In FY20 the LIC increased its dividend by 15% to 6.5 cents per share. That equates to a grossed-up dividend yield of 8.1% at the current WAM Leaders share price. It has increased its dividend each year since FY17 when it started paying one – it was only formed in 2016.

At the end of June 2020 it had a portfolio well suited to ride through any COVID-19 problems. Some of its biggest holdings were: BHP Group Ltd (ASX: BHP), CSL Limited (ASX: CSL), Goodman Group (ASX: GMG), Newcrest Mining Limited (ASX: NCM), OZ Minerals Limited (ASX: OZL), Rio Tinto Limited (ASX: RIO), Telstra Corporation Ltd (ASX: TLS) and Woolworths Group Ltd (ASX: WOW).   

NAOS Small Cap Opportunities Company Ltd (ASX: NSC)

This LIC is run by Naos Asset Management, a manager which focuses on smaller ASX shares. 

Naos generally has a portfolio around 10 names which it aims to be invested in for at least five years. That's a high-conviction portfolio.

Over FY20 NAOS Small Cap Opportunities Company outperformed the S&P/ASX Small Ordinaries Accumulation Index by 8.26% before fees, taxes and interest.

The LIC seems committed to paying a quarterly dividend of 1 cent per share. That equates to an annual grossed-up dividend yield of 11.3% at the current NAOS Small Cap Opportunities Company share price.

Using the pre-tax net tangible assets (NTA) per share of $0.68 at 30 June 2020, it's trading at 26% discount to last month's NTA. We'll have to wait a week or two to see July's NTA.

At the moment some of its positions are: Eureka Group Holdings Ltd (ASX: EGH), MNF Group Ltd (ASX: MNF) and Over The Wire Holdings Ltd (ASX: OTW).

Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is a LIC with a twist. It doesn't invest in individual ASX shares. It invests in funds of fund managers that invest in ASX shares. But neither Future Generation or the fund managers charge any management fees. That enables Future Generation to donate 1% of its net assets per year to youth charities.

At the current Future Generation share price it offers a grossed-up dividend yield of 7.1%. It has increased its dividend each year since 2015.

It's invested in around 20 fund managers at the moment. I think that provides a lot of attractive diversification. Bennelong is the fund manager with the biggest allocation right now.

Future Generation is trading at a 13% discount to the NTA at the end of June 2020.

Foolish takeaway

I like all three of these LICs for dividend income potential. The Naos LIC clearly has the biggest yield and it's trading at a big discount to its NTA. But Future Generation offers very attractive diversification, a good discount and a good yield too. It's hard to pick between these two.

The post 3 ASX LICs offering big dividend yields over 7% appeared first on The Motley Fool Australia.

I think that ASX share Future Generation Investment Company Ltd (ASX: FGX) could be a perfect buy for a $500 investment.

If you're investing with $500 then you want to make sure you choose the right one.

Shares are a great way to build wealth over the long-term. But you don't want your first investment to go badly wrong – that might put you off shares. 

I think the right ASX share is to go for something that could provide solid returns over the long-term.

A quick overview of Future Generation

Future Generation is a listed investment company (LIC). The job of a LIC is to invest in other shares on your behalf. But you can buy a LIC just like any other business on the stock exchange like Commonwealth Bank of Australia (ASX: CBA).

Many fund managers charge a management fee of around 1% (and then perhaps an outperformance fee, if it outperforms). Future Generation doesn't charge any management fees or performance fees. Instead, it donates 1% of its net assets to youth charities. It has a noble cause.

Future Generation doesn't invest directly into ASX shares. Instead, it invests into the funds of Aussie fund managers who invest in ASX shares. Those fund managers also don't charge management fees or performance fees.

Why I think this ASX share is a great investment for $500

These are my reasons for picking Future Generation:

Diversification

When you start investing you have to pick something to buy. If you choose an individual share then your entire portfolio consists of just one share. That's not diversified at all. Even high-conviction fund managers usually have around 10 different positions in their portfolio.

Most LICs offer a pretty diversified portfolio with at least 20 shares, perhaps several dozen positions. Future Generation is invested in the funds of around 20 funds. Each fund represents a whole portfolio of shares. So Future Generation's underlying portfolio seems to be very diversified with different ASX shares.

Those fund managers only put shares in the portfolio they think can produce good returns, so it's a compelling portfolio of underlying shares.

Dividends

One of the best features of investing in shares is the dividends. It's nice to get paid for no effort, apart from making the initial investment.

Many LICs like to pay dividends to shareholders. LICs can pay a smoothed dividend to investors from the capital gains generated and dividends that the LIC receives.

Future Generation has increased its dividend every year since 2015, when it first started paying a dividend. The LIC was only formed in September 2014. That's a reliable record from the ASX share.

At the current Future Generation share price it offers a grossed-up dividend yield of 7%. That's a great yield in the current environment. 

Performance

A LIC's investment performance can be measured against a benchmark. Future Generation's benchmark is the S&P/ASX All Ordinaries Accumulation Index.

Future Generation's gross portfolio performance has outperformed its benchmark by 3.3% over the past six months, 6% over the past year, 0.6% per annum over the past three years, 1.6% per annum over the past five years and 1.8% per annum since inception (September 2014).

Outperformance compared to the ASX share index over the long-term is attractive.

Cheap price

I think Future Generation is trading at an attractive price. With exchange-traded funds (ETFs) you buy $1 of assets for $1. With LICs you can buy $1 of assets for less than $1. That's described as a discount to the net tangible assets (NTA). I think that's an attractive way to buy ASX shares. 

At the end of June 2020, Future Generation had NTA per share of $1.147. That compares to the current Future Generation share price of $1.02. That's a discount of 11%. I'd be very happy to accumulate shares at the current level.

The post This ASX share could be perfect for a $500 buy appeared first on The Motley Fool Australia.

We are almost into August where reporting season will tell us about the impact of COVID-19 on many businesses. I think there are some top ASX dividend shares that are worth buying for long-term dividend income:

Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is a fairly unique listed investment company (LIC). It is philanthropic – it donates 1% of its net assets each year to youth charities. It's able to do this because there are no management fees charged by the LIC or its investments. Future Generation invests in the funds of ASX share-focused fund managers who work for free for the LIC.

In terms of the dividend, Future Generation has increased its dividend consecutively over the past few years. In FY19 it increased the dividend by 8.7% compared to FY18. At the current Future Generation share price it offers an attractive grossed-up dividend yield of 7%. I think it's a great ASX dividend share.

Aside from the dividend, I really like two elements of Future Generation. The underlying diversification is strong with investments in a number of portfolios of shares.

I also like that it's possible to buy Future Generation at a sizeable discount to its net tangible assets (NTA). Future Generation is trading at 11% of its June 2020 NTA. Plus, its portfolio has outperformed the ASX over the long-term.

Vitalharvest Freehold Trust (ASX: VTH)

Vitalharvest is an agricultural real estate investment trust (REIT). It owns some of the largest aggregations of berry and citrus farms in Australia. These farms are leased to Costa Group Holdings Ltd (ASX: CGC). Not only does Vitalharvest receive a solid fixed rent from Costa, it also has a profit share agreement for 25% of the profit that the farms make.

The REIT has a distribution yield of 6.2% based on the current Vitalharvest share price. If profitability returns to 2019 levels, then Vitalharvest could offer a yield of 7.3%. I think those are solid yield numbers for an ASX dividend share.

I'm attracted to the new strategy that Primewest Group Ltd (ASX: PWG) could bring as the new manager of Vitalharvest. It's going to look at more food-related properties used for storage and processing, not just farms.

The net asset value (NAV) per share of Vitalharvest was $0.95 at December 2019, so it's trading at a 19% discount.

Food is a very important resource, so I think Vitalharvest could be a solid ASX dividend share over the long-term.

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

For dividends, I believe that Soul Patts is the best ASX dividend share available to Aussie investors.

The main reason I think that is due to dividend reliability. If you're investing for dividends then I imagine you aren't not looking for an unreliable dividend. Dividends may be essential for providing cashflow to fund your life's expenses. I think dividend share picks should be reliable year to year and over the long-term, particularly when you need them most such as during this COVID-19 period. Many prior dividend favourites like ASX banks and infrastructure shares have cut dividends. 

Soul Patts has increased its dividend every year since 2000. It has provided dividend growth guidance for this year. It has paid a dividend every year in its 100+ year history.

The investment conglomerate owns a defensive portfolio of diversified businesses including telecommunications, building products, property, LICs, resources, swimming schools and agriculture.

Soul Patts is also planning to start investing in regional data centres, which opens up an interesting growth avenue for the company.

At the current Soul Patts share price it offers a grossed-up dividend yield of 4.25%. I think that's a solid yield, given the low interest rate environment we find ourselves in.

The post 3 top ASX dividend shares for income investors in August appeared first on The Motley Fool Australia.

I believe that ASX dividend shares are great options for income.

The official RBA interest rate is now just 0.25%. You won't get much interest from a bank account. I'd want to make my money work harder than that, so I'd go for ASX shares that will be good dividend picks.

However, I don't think that most ASX blue chips are the answer. We have seen dividend cuts from shares like National Australia Bank Ltd (ASX: NAB) and Sydney Airport Holdings Pty Ltd (ASX: SYD) during this COVID-19 era.

I think these ASX dividend shares could be much better ideas for long-term income:

Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is a listed investment company (LIC). The job of a LIC is to invest in other assets on your behalf. LICs are good options to be ASX dividend shares because they can turn investment returns (including capital growth) into a consistent dividend for their shareholders.

This LIC is quite different to most other LICs on the ASX. It doesn't charge any management fees or performance fees. Instead, it donates 1% of its net assets each year to youth charities. Future Generation invests in the funds of fund managers who invest in ASX shares. These fund managers don't charge any fees so that Future Generation can make those donations to youth charities.

Its investment returns are compelling. At the end of June 2020 it reported that over FY20 its gross portfolio performance showed a decline of just 1.2%, outperforming the S&P/ASX All Ordinaries Accumulation Index by 6% (which fell 7.2%).

At the current Future Generation share price it offers a grossed-up dividend yield of 7%. The share price is trading at an 11.5% discount to the June 2020 net tangible assets (NTA) per share. That means you're buying $1 of assets for less than $0.90.

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

Soul Patts has one of the best ASX share dividend records around. It has grown its dividend every year since 2000. It has actually been listed since 1903 and it has paid a dividend every single year including through world wars, recessions, the Spanish Flu and any other disaster you can name over the past century.

It's an investment house that's invested in a variety of listed and unlisted businesses. Some of its main ASX share investments are: TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Milton Corporation Limited (ASX: MLT), Bki Investment Co Ltd (ASX: BKI), Palla Pharma Ltd (ASX: PAL) and Clover Corporation Limited (ASX: CLV).

Some of its unlisted assets include swimming schools, agriculture, luxury retirement living and soon it will be involved in regional data centres.

Soul Patts has defensive assets which are well diversified. The investment conglomerate continues to diversify its portfolio and it has a strong focus on cashflow. Each year it tells investors what its regular operating cashflows are – this is the investment income minus operating expenses (and a few other small items). Soul Patts funds its dividend from its annual net cashflow. In FY19 it only paid out 80% of its net cashflow.

At the current Soul Patts share price it offers a grossed-up dividend yield of 4.2%.

APA Group (ASX: APA)

I think APA is a high-quality ASX dividend share. It has increased its distribution every year for the past decade and a half.

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.

It generates a reliable source of cashflow from its national customer base. This allows APA to pay a dependable distribution to shareholders each year. That's why it was able to stick to its annual FY20 guidance of 50 cents per unit.

Using the FY20 annual distribution, at the current APA share price, it's trading with a 4.5% distribution yield. I think it's very likely that FY21 will see another increase for investors.

Foolish takeaway

I really like all three of these ASX dividend shares. At the current prices I think Future Generation looks like the best value, but Soul Patts has a great dividend history and it's the one that I'd rely on for my investment income in retirement because of its reliability.

The post 3 of the best ASX dividend shares for income appeared first on The Motley Fool Australia.

ASX shares are a great way to start building your wealth, even if you only have $500.

It can be hard to know where to start. ASX shares have proven to be long-term performers. Generally, shares have returned around 10% per annum over the long-term. The returns look even better when you add in the bonus of franking credits which boost the after-tax return of dividends.

Now you know that shares have broadly performed well. But what are you supposed to invest in? There are thousands of different investment options on the ASX.

To help get you started, I have two ASX share ideas for you:

Share 1: Future Generation Investment Company Ltd (ASX: FGX) 

I think diversification is important for beginner investors. For example, if you put your $500 into Commonwealth Bank of Australia (ASX: CBA) shares then all of your money is tied up in one business. I think it could make a lot of sense to go for an initial investment that offers a lot of diversification upfront.

There is a certain group of businesses called 'listed investment companies' (LICs). Their job is to invest on behalf of shareholders. Future Generation is one of my favourite LICs for a number of reasons.

I like it because of the philanthropic nature of it. Future Generation donates 1% of its net assets each year to youth charities. This amounts to millions of dollars every year.

Future Generation doesn't invest directly into ASX shares, instead it invests into the funds of fund managers who invest in ASX shares. These fund managers are meant to be the best in Australia and are chosen by the Future Generation investment committee. Those fund managers work for free so that the annual donation can be made. Each of those funds represents a diversified portfolio, so Future Generation is probably indirectly invested in dozens of different businesses. That's good diversification.

Returns and dividend

A LIC should be judged for the returns that it generates. Since inception in September 2014 to May 2020, Future Generation's investment portfolio delivered a gross return of 7.2% per annum. This outperformed the S&P/ASX All Ordinaries Accumulation Index's return of 5.1% per annum. I think that's a solid performance. 

Indeed, Future Generation outperformed the index over one month, six months, 12 months, three years and five years. It has done well during this COVID-19 period. 

LICs can turn the investment performance into a consistent dividend for shareholders. At the current Future Generation share price it offers a grossed-up dividend yield of 7.1%.

The ASX share is currently trading at a share price of $1, which is a 12% discount to the net tangible assets (NTA) at 31 May 2020.

Share 2: Betashares Global Sustainability Leaders ETF (ASX: ETHI) 

Another good option for beginner investors is an exchanged-traded fund (ETF). An ETF is a fund you can buy just like a share through an exchange, like the ASX.

There are lots of different types of ETFs. Some are based on countries like Australia or the US. Some ETFs are focused on specific industries like healthcare, gold or technology.

There are ETFs which are based on a particular theme, or have particular standards when it comes to quality or 'ethics'. It can be hard to definite ethical investing because each person may prefer to exclude different things. For example, some people may want to exclude companies involved with poor environmental credentials whereas other people may want to leave out businesses involved with gambling.

Betashares Global Sustainability Leaders ETF excludes many different things like gambling, tobacco, alcohol, junk food, human rights and supply chain concerns. It has a particular focus on businesses that are climate leaders that try to be carbon efficient.

Its top share holdings as of yesterday were: Apple, Mastercard, Nvidia, Visa, Home Depot, Adobe, Paypal, Netflix and Toyota. Obviously none of these are ASX shares. So you're getting good international diversification if you go with this ETF as your first investment pick.

Past performance is not a guarantee of future performance. But the returns of this ETF have been impressive and it shows that you don't need to give up good performance to be invested in this ETF. Since inception in January 2017 it has returned 20.7% per annum after fees.

It's pretty cheap for an 'ethical' investment pick – the annual cost is 0.59% per annum.

Foolish takeaway

I think both of these ASX shares would be good first investments. Indeed, I'd be happy enough to just invest in these two ideas and nothing else. Future Generation is good way to get ASX share exposure, plus it has a good dividend and it's at good value. I think Betashares Global Sustainability Leaders ETF can provide strong international returns, like it has done, with its focus on sustainable businesses.

The post Starting to invest with $500? Here are 2 ASX shares appeared first on The Motley Fool Australia.