There’s always a balance to weigh up between dividend income potential, growth and how defensive the earnings are.
Some businesses have very big dividend yields but a lot of them are dangerously close to reducing the dividend at any time due to high payout ratios or because they operate in a dangerous industry.
The healthcare industry could be the best place to find the perfect mix because most businesses in the sector have defensive and growing earnings due to an ageing population and a growing population.
Perhaps these three shares could provide good long-term returns and big dividends:
Japara Healthcare Ltd (ASX: JHC)
Japara is one of the largest aged care providers in Australia. Australia’s ageing population is projected to lead to a huge increase of aged care residents. The number of people over the age of 65 is expected to increase by 75% over the next two decades.
Although the business does rely on government funding for a lot of its revenue, the residents pay for the rest and will want to stay at Japara’s higher-quality establishments even if they have to pay a little more.
Japara is currently trading at 18x FY17’s earnings with a grossed-up dividend yield of 8.10%.
Regis Healthcare Ltd (ASX: REG)
Regis is another of Australia’s largest aged care providers and is likely to benefit (or suffer) just as much as Japara, if not more.
Acquisitions, construction of new facilities and expansions of current facilities should see Regis add thousands more beds over the coming years as its takes advantage of the ageing tailwind.
Regis is currently trading with a trailing grossed-up dividend yield of 7.43%.
Australian Pharmaceutical Industries Ltd (ASX: API)
Australian Pharmaceutical Industries is best known for its Priceline pharmacy brand. The business has decent long-term potential thanks to organic growth in the beauty industry and health food industry.
Economies of scale allow the business to buy stock at cheaper prices compared to competitors, which it can then pass on some of the savings to consumers.
Australian Pharmaceutical Industries is currently trading with a trailing grossed-up dividend yield of 6.56%.
All three shares could be excellent dividend stocks and grow in the long-term. At the current prices I think Australian Pharmaceutical Industries will likely deliver the biggest shareholder returns over the next two years, but Japara could be the best long-term choice and it also has the biggest yield.
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Motley Fool contributor Tristan Harrison owns shares of JAPARA DEF SET and Regis Healthcare Limited. The Motley Fool Australia has recommended Australian Pharmaceutical Industries 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.