There are nearly as many ways to create wealth as there are people thinking about how to do it. For the stock market, nothing beats patience and the compounding effect of fully franked dividends.
While the capital gain on Telstra Corporation Ltd (ASX: TLS) since plumbing lows in 2010 has been spectacular, the juicy six-monthly dividend since then has provided shareholders with a massive bonus. When the shares were trading below $3.00 they were yielding 14%. A stock yielding only 7.2% per annum needs to be held for just 10 years in order to double the initial investment.
Provided they are held for the long term, the following three lower risk stocks may just drive your wealth much higher, via the combined power of growth and yield.
1. As Australia's biggest listed investment company (LIC) with a history dating back to 1928, Australian Foundation Investment Co.Ltd. (ASX: AFI) is well known for its strict long-term buy and hold philosophy. It invests in a well-diversified portfolio of between 70 and 100 stocks and its performance has stood the test of time. This has been achieved by targeting undervalued stocks with long-term sustainable earnings growth. It currently has a grossed up yield of around 5%. For the past ten years AFIC has produced average annual returns of 10.9%, including dividends.
2. Bentham IMF Ltd (ASX:IMF) is engaged in providing funding of legal claims and other related services, in Australia and other jurisdictions. Legal firms in Australia cannot fund litigation proceedings and are compelled to use external parties, as lawyers can't be seen to have a conflict of interest in both funding and prosecuting a case. Thus Bentham IMF has a significant barrier to entry that prevents robust competition. The current share price of $1.95 represents a grossed up yield of around 7.3%. Ongoing growth is expected to be generated by recent international expansion.
3. Woolworths Limited (ASX:WOW) has over 1,000 supermarkets in Australia and New Zealand and is the dominant player in the industry. Woolworths has increased its dividend four-fold over the past decade. Its return on investment (ROI) has hovered around 30% over that time. The stock is trading on a grossed up yield of above 5%. Growth is expected to come from hardware and gaining leverage from the existing customer base by cross-selling of services such as insurance.
Another quality stock at a bargain price
While the above three stocks should be first-class performers, there is another stock that could outpace the lot. The top Motley Fool analysts have researched this stock, which looks one to hold.
