The share market is full of different types of businesses. As investors we sometimes like to put some of them into groups like income shares and growth shares. It’s true that many characteristics that people attribute to each group are true, but I think it’s possible to find a combination of both income and growth. I don’t mean you can find a share offering a 10% dividend yield growing its earnings per share (EPS) by 20% a year, that doesn’t exist. We need to think that we may hold the shares that we invest in for several years. A long-term…
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The share market is full of different types of businesses. As investors we sometimes like to put some of them into groups like income shares and growth shares.
It’s true that many characteristics that people attribute to each group are true, but I think it’s possible to find a combination of both income and growth.
I don’t mean you can find a share offering a 10% dividend yield growing its earnings per share (EPS) by 20% a year, that doesn’t exist.
We need to think that we may hold the shares that we invest in for several years. A long-term investment strategy is the best way to generate strong returns, it also means you can be patient for your desired outcome.
Many investors will have taken a position in Telstra Corporation Ltd (ASX: TLS) over the past few years for its grossed-up yield of something like 9%. But, that dividend was never going to grow at a strong rate. Indeed, it has only gone backwards.
If you can invest in a share that has an acceptable yield today and that business is growing its dividend strongly each year, after five years the dividend income you get from that fast-growing business could offer a better yield-on-cost than the no-growth dividend stock like Telstra.
Here are three ideas for fast-growing dividends.
MNF Group Ltd (ASX: MNF)
MNF Group is one of Australia’s largest Voice over Internet Protocol (VoIP) businesses. It is growing strongly organically and is growing its number of customers by a pleasing rate. The company has reached a big enough size that management are happy to pay out a growing dividend.
In its recent half-year report MNF increased the dividend by 15% and the earnings per share (EPS) grew by 16%. MNF currently has a grossed-up dividend yield of 2.3%.
Ramsay Health Care Limited (ASX: RHC)
Ramsay is Australia’s largest private hospital operator which has a long-term tailwind thanks to the ageing population. Ramsay is always investing for more growth, which should lead to higher earnings and bigger dividends.
In the recent half-year result Ramsay revealed ‘core EPS’ growth of 7.8% and the dividend growth was 8.5%. Ramsay currently has a grossed-up dividend yield of 3.17%.
Altium Limited (ASX: ALU)
Altium is one of the world’s biggest electronic PCB software providers. It is growing at a fast rate thanks to the growth of technological products around the world, particularly with the ‘Internet of Things’ phenomenon.
In its half-year report to 31 December 2017 Altium revealed that its EPS grew by 50% and it grew the dividend by 18%. Altium currently has a dividend yield of 1.18%.
All three shares are growing their dividends at a fast rate. Altium is probably a bit too expensive for a value buy today, but MNF and Ramsay could both good buys today and generate strong income in the coming years.
A business growing its dividend even faster than the above three is this growth stock that I own in my portfolio.
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Motley Fool contributor Tristan Harrison owns shares of Altium and Ramsay Health Care Limited. The Motley Fool Australia owns shares of and has recommended MNF Group Limited and Telstra Limited. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Ramsay Health Care 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 Scott Phillips.