My 3 share picks for the dividend-hungry investor

Retail Food Group Limited (ASX:RFG) is one of 3 dividend shares which I think provide a strong yield and growth. Here are the other two…

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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.

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.

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