My 3 share picks for the dividend-hungry investor

When it comes to dividends there are several things that I believe investors should look out for before making an investment.

The first thing that I would look for is whether or not the company has a history of increasing its dividends. A big yield is great, but dividends that grow are worth their weight in gold.

After that I want to check that the dividend is sustainable. Every business is different, but the lower the payout ratio the better in my opinion.

Finally the yield. Whilst those with a long time horizon can be more forward-thinking, investors that are looking for income immediately will be best served with an above-average yield.

Three dividend shares which I believe fit the bill are as follows:

Cedar Woods Properties Limited (ASX: CWP)

This leading property developer has grown its dividend by an average of 5.9% per year for the last 10 years, whilst paying out approximately 50% of its earnings. If it does the same again in FY 2017 then investors can look forward to a fully franked 6.1% dividend. Thanks to the strong start to the fiscal year I believe this to be very likely. In its first quarter update the company revealed that pre-sales are currently at $230 million, up 25% on the same period last year.

Nick Scali Limited (ASX: NCK)

Furniture retailer Nick Scali has grown its dividend by an average of 12.5% per year for the last 10 years. A similar increase next year would provide investors with a fully franked 5.3% dividend. As the company imports its furniture a weakening Australian dollar could pose a challenge in the future, but for now I feel confident that there’s a lot more growth left in its tank thanks to the housing market boom. Nick Scali pays out on average a sustainable 70% of its earnings as dividends.

Retail Food Group Limited (ASX: RFG)

The master franchisor of brands such as Gloria Jean’s, Donut King, and Michel’s Patisserie is possibly my favourite dividend share on the Australian market. The company has increased its dividend for 10 consecutive years at an average rate of 17.9%. According to CommSec analysts expect a 9% rise in the year ahead, providing investors with a fully franked 4.9%. Roughly two-thirds of its profits are paid out as dividends, which I feel is more than sustainable.

Still hungry for more dividend shares? I would recommend investors take a look at this top dividend share. A strong yield and potential share price gains make this a great investment idea in my opinion.

Our Top Dividend Stock for Smart Investors

Our resident dividend expert names his Top Dividend Share. Not only are the shares dirt cheap, the company is trading on a fat fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Retail Food Group 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 Bruce Jackson.

HOT OFF THE PRESSES: My #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.