At today’s prices, Magellan Financial Group Ltd (ASX: MFG) shares, Blackmores Limited (ASX: BKL) shares and small-cap Paragon Care Ltd. (ASX: PGC) offer growing dividend yields.
The best kind of dividend shares
Looking at the ASX’s highest-yielding shares, it’s pretty easy to fall head-over-heels in love with bank shares like Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB), or the mighty Telstra Corporation Ltd (ASX: TLS).
Over the past decade, the ASX’s big blue chips have performed exceptionally well. There’s no doubting that. What’s made them such good investments is the fact they have grown profits (and the share price has reacted) and their dividends, over time.
NAB and CBA Dividends
Looking into the future, will these blue chips increase their dividends at the same pace? Will the share price continue to rally from these levels?
I believe the chance of the ‘usual suspects’ providing the same degree of growth is unlikely. That’s why, if I were looking for tomorrow’s growth + dividend shares, I would look further down the market. Here are three ideas:
- Magellan: Magellan is a Sydney-based fund manager. Arguably, the $4 billion company’s best growth is behind it. However, with room left for more investors in its key investment strategies, plus new strategies being rolled out, the company’s shares are worthy of further research. Magellan shares trade on a dividend yield over 3.5% fully franked.
- Blackmores: The vitamins producer has had a tough run of late, with its share price collapsing 44% in a year. However, at today’s prices, I think the company’s long-term growth potential has improved, and its 2.5% dividend is icing on the cake.
- Paragon Care: Paragon Care is only a small cap, worth around $126 million. This share idea is provided for those seeking a higher risk company with a little more growth potential. Paragon Care distributes a range of medical products. In addition to its growth potential, it offers a 2.8% dividend yield.
I’m a firm believer that long-term investing is the only way to make a sustainable return from the sharemarket. Sure, you could trade stock ideas daily. But you miss the potential for your shares and dividends to compound year after year after year. For example, Commbank shares are priced at $83 and pay a $4.20 per share dividend each year — just imagine if you sold out for $6 in the early 90’s after making a quick buck.
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The Motley Fool Australia has no position in any of the stocks mentioned. 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.