The Motley Fool's analysts will often say that 'dividends aren't the full story' when it comes to stock picking.
And they're right, because it's far more important to look at a company's underlying business and potential to pay and grow future dividends, rather than anchoring on a certain yield % that fluctuates up and down with the share price.
However with that said, I basically won't invest any meaningful portion of my portfolio in a stock that doesn't pay a dividend.
Fellow contributor Regan Pearson points out why in this article, showing that reinvested dividends even at a meagre 5% growth rate can make a substantial difference to investment returns over a ten-year period.
With those kinds of figures in mind, I've collected three shares that are trading on undemanding prices (because everyone loves a bargain) which, combined with the potential for growing dividends, could lead investors to a very comfortable retirement.
Without further ado the first contender, Lifehealthcare Group Ltd (ASX: LHC).
Lifehealthcare supplies medical equipment of all kinds, from disposables to more advanced (and higher margin) imaging and diagnostic equipment.
Although a relatively recent entrant to the ASX, the company has already beaten its prospectus and continues to look like a buy despite its recent surge in price.
Double digit revenue growth has major appeal and a purchase now could pay disproportionately greater rewards than one further down the track once growth has slowed and/or competition increased.
G8 Education Ltd (ASX: GEM) has seen its share price hammered recently despite growing profits, and the company now offers a massive 6.1% fully-franked dividend.
Despite fears new childcare regulations could impact the business, I continue to believe that the aggregation strategy will be successful for G8 Education as there will always be a place for childcare centres; not least for the socialisation benefits compared to having the kids at home with a nanny.
As contributor Owen Raskiewicz wrote, "Directors sell their own company's shares for many reasons, but they buy for just one", and recent director purchases are a vote of confidence in the value of G8 Education shares.
Last but not least Woolworths Limited (ASX: WOW) continues to offer long term value to investors.
While the 19% decline in value this year offers an attractive entry point, Woolies' defensive nature combined with the scale of its operations has also delivered great long-term rewards over the past 20 years and should continue to do so in the future.
As management pointed out to the Masters Hardware pessimists, a falling share price is irrelevant, and Woolworths has a long track record of building successful businesses (think hotels and Dan Murphys) and delivering the goods to shareholders.
It's worth noting that even the Great Sage of Omaha, Warren Buffett himself, has experienced rollercoaster rides over the years, with many of his biggest holdings significantly underperforming the market and attracting considerable scepticism before coming into their own over the long term.
Unfortunately it matters little what shares you buy, if you haven't got the temperament to hold them!
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