The stock market has historically returned around 10% a year over the last few decades. This has been great for any investor who has invested in shares.
That 10% return has been from a combination of share price gains and dividends. If an investor can identify stocks that could provide that return almost entirely from dividends, then the business only has to grow with inflation to beat the market.
Here are three businesses with huge dividend yields that could keep growing (slowly) over the coming years:
G8 Education Ltd (ASX: GEM)
G8 is one of Australia’s largest childcare providers with a market capitalisation of $1.47 billion.
It has successfully utilised an acquisition strategy to grow its portfolio to over 500 centres across Australia and Singapore. Every centre that it acquires adds to the economies of scale that the company enjoys.
There is a decent chance that G8 may expand into China, which could be a huge growth market. G8 is currently trading at 12.6x FY17’s estimated earnings with a grossed-up dividend yield of 9.42%.
Mortgage Choice Limited (ASX: MOC)
Mortgage Choice is one of the biggest mortgage brokers in Australia with a market capitalisation of $280 million.
It has a network of over 460 outlets which contributed to Mortgage Choice growing its cash earnings per share by 16% and its dividend by 6.3% in its latest results to 31 December 2016.
Mortgage Choice is currently trading at 14x FY16’s earnings with a grossed-up dividend yield of 10.8%.
Retail Food Group Limited (ASX: RFG)
Retail Food Group is the master franchisor behind names such as Donut King, Gloria Jean’s and Crust Gourmet Pizza. It currently has a market capitalisation of $961 million.
The share price has been under pressure in recent months due to the rising number of franchisee outlets that are closing.
Retail Food Group is expanding overseas nicely, particularly into Asia. This could make up for the closures in Australia. In the latest results management revealed that earnings per share had grown by 8.3%.
It’s currently trading at 13.4x FY16’s earnings with a grossed-up dividend yield of 7.68%.
I think all three of these businesses could be good options for dividend hunters, although there are risks with each. Out of the three, I think Retail Food Group is most likely to beat the market at the current price.
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Returns As of 6th October 2020
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Retail Food Group Limited. Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. 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.