I personally don’t think there’s anything wrong if investors are focused on generating income from their portfolio, after all cash is what people need to pay for their lives. But, I think it can be a mistake for investors to just go for high yielding shares that aren’t going to grow much.
A better strategy could be to invest in shares that will significantly grow their dividends in time. Here are three examples of shares that could be dividend stars of the future:
MNF Group Ltd (ASX: MNF)
MNF Group is one of Australia’s largest providers of Voice over Internet Protocol services. Indeed, some of its biggest clients include Skype and Uber. It seems that the world is just going to become more connected and rely on voice services, which should hopefully mean good organic growth for MNF Group.
In its recent half-year result MNF increased its dividend by 14.7% and it currently offers a grossed-up dividend yield of 2.42%. Another couple of years of double digit growth could see MNF pay investors solid income for the purchase price.
WAM Microcap Limited (ASX: WMI)
WAM Microcap is one of the listed investment companies (LICs) run by Wilson Asset Management. It has had a strong start to its listed life, its portfolio has returned 24.1% before fees since inception in June 2017.
Microcaps of under $300 million are the smallest on the stock exchange, but that gives them the most room to grow. This is WAM Microcap’s hunting ground.
WAM Microcap has just started paying a dividend of two cents per share. Assuming another two cents per share dividend in six months’ time it currently has a grossed-up dividend yield of 4.08%. In time its yield could grow to be above 7.5% like some of the other WAM LICs.
Costa Group Holdings Ltd (ASX: CGC)
Costa is one of Australia’s largest food-growing companies. It currently grows avocadoes, berries, citrus fruit, mushrooms and tomatoes. The company is expanding in Australia with acquisitions and it also has operations in North Africa and China.
In its recent half-year result Costa increased its dividend by 25% and currently has a grossed-up dividend yield of 2.34%.
In five years time all three shares could be delivering a better dividend yield on cost than buying a no-growth dividend share. Plus, the fast-growing dividend shares should come with decent capital growth too.
The best future dividend star of all could be this growth stock which just increased its dividend by more than 25% in its latest result.
It's been a nail-biter of a reporting season here in the first half of 2018.
But the real action, in my opinion, is what companies are doing with dividends.
What does this mean for you? Well there is one stock I've found that could very well turn out to be THE best buy of 2018. And while there's no such thing as a 'sure thing' when it comes to investing - this ripper might come as close as I've ever seen.
Motley Fool contributor Tristan Harrison owns shares of WAM MICRO FPO. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO and MNF Group 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.