When it comes to planning for life in retirement when you won't have any income from a full-time job for example many people will want to secure as higher income stream as possible from their investments.
As such classic growth stocks like CSL Limited (ASX: CLS) or REA Group Limited (ASX: REA) won't pass muster due to their feeble yields around 1.5%.
In compensation for taking on the considerable risks around share market investing income seekers should ideally demand a yield of at least 6% plus the tax effective benefits of franking credits.
Many will look to the banks and Telstra Corporation Ltd (ASX: TLS), but there are other opportunities available to offer diversification and hopefully some growth potential.
IT hardware distribution business Dicker Data Ltd (ASX: DDR) could offer dividend seekers a more balanced investment portfolio, so let's consider its qualities.
- Dividends! The company pays quarterly dividends and now offers a trailing yield of 6% plus the tax effective benefits of full franking credits. That yield is based on dividends of 16.8 cents per share and an exchange traded price of $2.80.
- Management: Chairman and co-founder David Dicker has run the company for 40 years and still owns a substantial part of the company. In fact he's so committed to the long-term growth of the company and its dividend payments that he refuses to accept a salary. While co-founder Fiona Brown draws a minuscule salary of $37,000. You cannot get better alignment with shareholders' interests in that.
- Dicker Data is not a shoot-the-lights-out growth stock, but it does have an impressive track record of revenue and profit growth. Earnings per share have more than tripled since 2011, with profit and revenue growth in the mid-single to double digits for the six-month period ending December 31 2017.
- Dicker Data is a a market leader in an IT hardware distribution industry that operates on slender margins. As such its competitive position is reasonable, as it's tough for others to muscle in profitably. It also enjoys the tailwinds of the growth of the digital economy as demand rises for IT hardware, whether that be related to data storage, analytics or infrastructure.
- Don't forget the valuation! Dicker Data sells for 16.5x trailing earnings per share, which suggests the market is factoring in more mid-single digit growth. I'm not betting against that and if the company keeps growing it should offer income seekers healthy total returns from here.
There are substantial risks of course including key vendor relationships being lost, competition, an economic downturn, or disruption across the industry. Any profit falls would almost certainly result in a large reduction in the share price, as such Dicker Data should only be owned as a small part of a balanced portfolio.
