Just imagine you bought Commonwealth Bank of Australia (ASX: CBA) at its 1991 initial public offer price of $5.40 and still held it today.
Even without adjusting for splits and new issuances, not only would you be sitting on huge share price gains, this year you would have received a dividend equivalent to 75% of your original investment. Fully franked no less!
Make no mistake, by adopting a buy to hold investment strategy for the long term, ordinary Australians can make truly life-changing amounts of money in the share market.
However the chance to buy CBA has well and truly passed.
To achieve the best gains on new money, investors should be looking for tomorrow's dividend champions, not today's. To do this investors must identify which companies are growing sustainably and those which are shareholder friendly and willing to return excess funds in the form of dividends.
I'm not talking about speculative punts but profitable businesses which can grow modestly for a very long period of time.
Credit Corp Group Limited (ASX: CCP) is such an example. It has achieved a total shareholder return of 32% over the past five years. Since falling tremendously during the GFC, the receivables management company's dividend payout has increased 10-fold.
Another dominant mid-cap Australian company with a solid track record for growing its profits and dividends is Slater & Gordon Limited (ASX: SGH). The law firm's dividend yield of 1.4% may be modest now but it's important to note its dividend payout is covered almost four times by earnings (implying it's sustainable and there's plenty of room for it to be increased). Indeed its dividend has almost doubled since 2008.
Finally, childcare centre owner and operator G8 Education Ltd (ASX: GEM) has achieved exceptional growth over the past five years. Whilst the collapse of ABC Learning lives in the back of many investors' minds, G8's finances and long-term growth prospects appear much better. Its dividend has climbed from 2 cents per share in 2010 to be forecast by analysts at 17.5 cents per share next year.
Foolish takeaway
If you're investing for the long term, try to identify companies which can sustainably grow earnings for many years. That is, not just those companies with positive near-term outlooks, or those which currently boast the biggest dividend yields.
