Whilst a huge dividend yield is great, I believe dividends with significant growth potential are even better. This is because of something called the yield on cost.
Take for example Retail Food Group Limited (ASX: RFG). Investors that bought Retail Food Group shares 10 years ago would have paid $1.58 for the privilege.
At present the shares of the company behind consumer discretionary brands including Gloria Jean's and Donut King provide a trailing fully franked dividend of 29.2 cents.
This means that the yield on cost for those early investors is a massive 18.5%. Not bad for doing nothing but sitting on those shares for a decade!
Three shares which I believe could provide similar results for investors in the next decade are listed below. Here's why I think you should consider them today:
Altium Limited (ASX: ALU)
Although this software-as-a-service company's shares only provide an unfranked 2.4% dividend, I believe it is in a strong position to increase this substantially over the next few years. Due to the strong demand for its printed circuit board design software, management believes it is on course to almost double its revenue to US$200 million by FY 2020.
Collins Foods Ltd (ASX: CKF)
Thanks to its recent expansion both at home and in Europe, I believe this KFC restaurant operator could have a bright future ahead of it. At present Collins Foods' shares provide a trailing fully franked 2.8% dividend. But I think the combination of its low payout ratio and strong earnings growth potential will allow this dividend to grow substantially in the future.
Premier Investments Limited (ASX: PMV)
Due to its share price falling approximately 16% in the last 12 months, the shares of the company behind the Smiggle, Peter Alexander, and Just Jeans brands provide a trailing fully franked 3.8% dividend. Thanks to the international expansion of its Smiggle business, I expect this dividend to increase at an above-average rate over the next few years.
