3 attractive shares with dividends that could double

I think we would all agree that dividends are great, but growing dividends are even better. I believe patient long-term buy and hold investors know this better than anyone.

Let’s use one of my favourite dividend shares on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) as an example. It has grown its dividend for nine consecutive years and I feel quite sure we will see another increase this year.

The share in question is Retail Food Group Limited (ASX: RFG), the master franchisor of popular brands such as Gloria Jean’s, Michel’s Patisserie, and Donut King.

Let’s ignore share price gains for now and focus purely on its dividend. If you had invested $10,000 in Retail Food Group on June 1 2007, you would have got 6,622 shares for $1.51 each. At that point in time these shares provided a full year fully franked 4.2% dividend, worth 6.2 cents per share.

If we fast-forward to today, you’ll see that each of these shares is now estimated to receive a dividend of 30 cents in FY 2016, equal to a yield on cost of almost 20%. The average dividend increase of over 19% per year now means that these savvy investors will receive just short of $2,000 in dividends in FY 2016 on their original $10,000 investment.

In my opinion this goes to show that although dividend shares often have a reputation for being boring investments, they can be some of the most rewarding long-term investments you could make.

Looking to the future, I have picked out three shares which I believe could grow their dividends in a similarly strong manner. In fact, I believe they have what it takes to double their dividends in the next few years.

Altium Limited (ASX: ALU)

Altium is an exciting company looking to profit on the back of the growth of the Internet of Things. Its software allows companies to design printed circuit boards to be used in connected devices. Its shares currently provide a 3.5% dividend, but analysts are expecting it to increase by around 30% per annum for the next couple of years at least. With its addressable market expected to grow at a solid rate thanks to strong demand for printed circuit boards, I believe Altium has what it takes to increase its dividend for many years to come.

Medibank Private Ltd (ASX: MPL)

Australia’s largest publicly-listed health insurer, Medibank Private is growing its earnings at an impressive rate. In its most recent interim results, profit was up 58% year-on-year. But in such a saturated market I don’t believe this level of growth will be sustainable for too much longer. At present Medibank Private shares provide a fully franked 2.5% dividend, which is good but not great. Overall though this could be a key dividend share for income investors in a few years from now.

Ozforex Group Ltd (ASX: OFX)

Despite a 22% climb in its share price in the last three months, OFX shares are still expected to provide a fully franked estimated 3.4% dividend in FY 2017. The company has recently undertaken its Accelerate Strategy in the hope of growing at a strong rate in the next few years. Part of the strategy included changing its name to OFX in a bid to attract a wider audience for its services. Analysts appear bullish on the company, anticipating its earnings and dividend to increase at 16% and 22%, respectively.

These were just three of many dividend shares which I believe are very attractive investments today. If you're looking for more options then these generous dividend shares are just as good if you ask me.

Why retirees LOVE these 5 ASX stocks

Discover The Motley Fool's top 5 ASX dividend stock ideas for 2016 to get you started building a more diversified income portfolio that is paying you back! Click here to learn more.

The report is free! No credit card required.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Altium and 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

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.