I firmly believe that dividends are an important part of an investor's consideration of shares. You never know when you'll want to sell the share, but I want growing profit and income from the share in the meantime, as long as it's sustainable.
One of the main things I look for in a dividend stock is that it increases its dividend most years. With that in mind, here are three of my favourite ideas:
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) (Soul Patts)
Soul Patts is Australia's oldest investment conglomerate, having operated for over a century. It takes large stakes in businesses it believes will create market-beating returns over the long run such as TPG Telecom Ltd (ASX: TPM).
The diversified portfolio approach has meant Soul Patts has been able to profit from Australia's growing economy over the past 20 years. That's one of the reasons why it has managed to increase its annual ordinary dividend every year since 2000. Its total shareholder returns have beaten the ASX index over the past 10 years and 15 years too.
It currently has a grossed-up dividend yield of 4%.
Rural Funds Group (ASX: RFF)
Rural Funds Group is the only pure agricultural real estate investment trust (REIT) on the ASX. It owns a variety of farm types including cattle, almonds and vineyards.
Rental indexation is built into all of its farming contracts, allowing management to confidently predict that the distribution can increase by at least 4% each year over the long-term.
It's currently trading with a distribution yield of 4.7%.
WAM Research Limited (ASX: WAX)
WAM Research is one of my favourite listed investment companies (LICs) on the ASX. It purely looks at the underlying quality of the potential industrial shares and buys if the investment team see a catalyst that will improve the valuation.
Over the past five years its portfolio has returned an average of 17.4% per annum, before fees. This performance has allowed the LIC to pay a dividend which has grown each year since the GFC.
The trailing grossed-up dividend yield is 8.8%.
Foolish takeaway
All three shares look like very compelling dividend choices to me. At the current prices, WAM Research is likely to deliver the biggest dividend income over the next few years due to how large its yield is. However, the other two may have a better chance of delivering capital growth as well – WAM Research is currently paying out a significant portion of its profits each year.
