At the end of the day, investing in shares is all about your total return. What is your total return? It's the sum of the price appreciation (or depreciation) of your stocks, plus the dividend income you receive.
There's no secret to the fact that Aussie investors love their dividends!
There are at least three reasons why dividends are attractive for Aussie investors. Firstly, the franking system means that the income from dividends is received in a tax efficient way. Secondly, dividends can provide a steady stream of income which helps manage cash flow. Thirdly and perhaps most importantly, studies have shown that dividends regularly contribute over 50% of total return.
With dividends playing such an important role for investors' total return, it's no wonder stocks such as Telstra Corporation Ltd (ASX: TLS) and Westpac Banking Corp (ASX: WBC), with their fully franked 5.25% dividend yields are so highly prized.
What about the other 50%?
Smart investors realise that while they can only boost the dividend yield across their portfolio so far, they can boost their price appreciation further if they pick the right stocks.
These same investors look to not just add high-yield stocks to their portfolio, but to add stocks with high-growth potential as well. Here are three examples:
Platinum Asset Management Limited (ASX: PTM) can continue to grow its funds under management without having to substantially increase its cost base. This business model provides great leverage to higher earnings. Platinum also has a trailing dividend yield of 4.3%.
Macquarie Group Ltd (ASX: MQG) recently announced expansion of its infrastructure capabilities. It's another example of how the investment bank keeps innovating new business opportunities to grow its earnings. The stock trades on a trailing dividend of 4.3%.
Amcor Limited (ASX: AMC) already has significant global packaging operations but there is still scope for further expansion and earnings growth. The demerger of the Orora Ltd (ASX: ORA) business has also made the firm more nimble. Amcor trades on an historic yield of 3.9%.
