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How I’d invest $5,000 into dividend shares today

It’s getting harder to find good sources of income these days with banks offering a very pitiful interest rate on money in the bank. The best rate you can find these days is between 2.8% to 3%, depending on the bank and its rules.

Shares are the only game in town to generate good income, which is why income investors would be well suited to look at some shares on the ASX.

However, just because something has a big yield doesn’t mean it’s necessarily good.

If I had $5,000 this is how I’d do it:

Naos Emerging Opportunities Company Ltd (ASX: NCC) – $1,500

This was the first listed investment company (LIC) launched by Naos. It looks at the smallest end of the market for opportunities, namely being shares that have market capitalisations under $250 million.

It’s a fertile hunting ground because few managers, analysts or regular investors go looking there for opportunities. Over the past five years its portfolio has returned an average of 14.59% per annum before fees but after operating expenses. This performance allows it to pay a nice dividend.

It has increased its dividend each year since the second half of FY13 and currently has a grossed-up dividend yield of 8.6%.

Greencross Limited (ASX: GXL) – $1,500

The largest pet company in Australia continues to grow its revenue through new vet & retail sites and like-for-like sales growth. This is despite the write-offs that the CEO recently announced, so the business appears to be in a good position to create future profit growth.

Investors may have sent the share price down, but this has boosted the dividend yield which is currently 6.2%. The dividend has increased each year since 2009.

WAM Research Limited (ASX: WAX) – $1,000

WAM Research is another LIC and it could be the best source of dividends over the next few years. It has one of the best profit reserves across the LIC sector and has also been one of the best performers over the last five years with the portfolio growing by 18.5% per annum before fees.

It turns a lot of this performance into a growing dividend which has been going up each year since the dividend. It currently has a grossed-up yield of 9%.

InvoCare Limited (ASX: IVC) – $1,000

InvoCare is the largest funeral operator in Australia and New Zealand. Worries about price competition, a decline in the short-term death rate and its refurbishment plan have all caused the share price to fall to $13.79 and has boosted the grossed-up yield to 4.77%.

It could create long-term success because death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050.

Foolish takeaway

I’ve allocated a little more to the first two because I think they are trading at good value, whereas the latter two are probably a bit expensive but still could be excellent dividend choices over the long-term.

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Motley Fool contributor Tristan Harrison owns shares of Greencross Limited, InvoCare Limited, and WAM Research Limited. The Motley Fool Australia owns shares of and has recommended Greencross Limited. The Motley Fool Australia has recommended InvoCare 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.

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