Through the power of compounding and fully franked dividends, most retail investors should be able to double their portfolio within 10 years, no matter how small it is.
To double your money in 10 years, you need to generate a return of around 7.2% each year over the period. With more than a few ASX-listed companies paying dividend yields of above 5%, you’re two-thirds of the way there. If those same companies can generate growth of more than 2.2% – not an especially hard task, some might even call it easy – investors will meet their target.
Add in the advantages of low tax rates by investing through your self-managed super fund (SMSF) and franking credits, and the job becomes even easier.
Here are four stocks that are currently paying decent fully franked dividends, and each one is likely to generate enough growth to beat the 7.2% target we’ve set for each year…
Telstra Corporation Ltd (ASX: TLS) is currently paying a fully-franked dividend of 5.4%, which could even increase, and the company should be able to generate growth in profits of above 2%, thanks to its domination of the Australian telco sector, its deal with NBN and potential move into Asia.
Insurance Australia Group Limited (ASX: IAG) is currently paying a 6.5% fully franked dividend yield. Think the company can grow earnings by more than 1% a year over the next 10 years? More than an even chance I’d say.
CSL Limited (ASX: CSL) doesn’t pay much in the way of dividends, currently at 1.7%, but what the company has on its side is its tremendous ability to generate high levels of growth – 25.5% over the past 10 years – and that’s each year! Throw in a succession of share buybacks and generating a return of more than 7.2% a year with CSL should be a walk in the park.
Woolworths Limited (ASX: WOW) pays a 3.8% fully franked dividend at the current price of $35.82, and has generated earnings per share growth of 3.5% on average over the past three years. As the company’s home improvement stores mature and capex declines, that growth is likely to rise.
So there you have it, 4 companies that could set you on your way to doubling your portfolio within 10 years.