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How to find the best dividend shares on the ASX

Who doesn’t love a good dividend paying share? In Australia we have some of the most generous dividend payments in the world, particularly when you add the great tax-effective franking credits.

Most of the companies on the ASX pay a dividend – but what makes a great dividend payer? There are a number of different factors:

Dividend increase streak

When a company can increase its dividend for a long, sustained period then I think that’s worthy of being in the list of best dividend shares.

How long of a streak makes it a strong streak? I would suggest at least 10 years of consecutive increases. So which companies fall into this bracket?

The funeral operator InvoCare Limited (ASX: IVC) has a dividend streak going back to 2006. The private hospital operator Ramsay Health Care Limited (ASX: RHC) has been increasing its dividend since 2000. Investment conglomerate Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) has been growing its ordinary dividend since 2000.

Huge dividend yield

Perhaps it’s the size of the dividend yield that makes the stock the best. Of course, sometimes a dividend yield can be a yield trap. It’s large yields that are sustainable that are important.

The childcare provider G8 Education Ltd (ASX: GEM) has paid 6 cents per share every quarter since January 2015 and is expected to keep doing so – this means it’s trading with a grossed-up dividend yield of 8.59%.

Loan broker Mortgage Choice Limited (ASX: MOC) has been maintaining or growing its dividend every year since 2009 and it has a grossed-up dividend yield of 10%.

Size of the dividend increases

Maybe the best sign of a good dividend share is how much it increases its dividend over the years.

Five years ago in 2012 annuity king Challenger Ltd (ASX: CGF) paid 18 cents per share as dividends. Its latest two payments add up to 33.5 cents per share, a great 86% increase.

In 2012 tech company Altium Limited (ASX: ALU) paid 10 cents per share as dividends, its latest two payments add up to 21 cents per share, a strong 110% increase.

In 2012 Realestate.com.au owner REA Group Limited (ASX: REA) paid 32 cents per share as dividends. Its latest two payments add up to 85.5 cents per share, a fantastic 167% increase.

Foolish takeaway

I think all three factors are important when deciding to buy a dividend stock. Depending on whether you want security, income, or growth will determine what shares would be the best ones for your portfolio.

Perhaps the best dividend share is our number one dividend pick for 2017 – it’s grown its dividend for over 10 consecutive years, its yield is over 7.75% and it increased its latest interim dividend by over 13%.

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Motley Fool contributor Tristan Harrison owns shares of Altium, Challenger Limited, InvoCare Limited, Ramsay Health Care Limited, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Altium, Challenger Limited, and Washington H. Soul Pattinson and Company 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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