It's quite easy to identify the dividend stars of today, you just need to look at the current dividend yield and hey presto – you're getting a lot of dividend income. Shares like WAM Research Limited (ASX: WAX) and Naos Emerging Opportunities Company Ltd (ASX: NCC) both have yields above 8%.
But it can also be worthwhile to try to identify the future dividend stars on the ASX. Although the dividend from these businesses may not impressive now, the income could grow substantially over time.
Here are two future dividend star ideas:
Paragon Care Ltd (ASX: PGC)
Readers who read most of my articles would be aware of Paragon. It sells a variety of healthcare devices, equipment and beds to healthcare customers like hospitals and aged care. It is steadily acquiring more suppliers so that it can offer a wide range of products on a single purchasing system.
Paragon is also exposed to the ageing demographic tailwinds which hopefully leads to growing demand for Paragon's products over time.
It currently has a grossed-up dividend yield of 5.1%, which is based on an annual payment of 3 cents per shares. This was a dividend payout ratio of under 50% for FY17.
If the pro-forma calculations that Paragon did are correct, it could have generated 7.7 cents of earnings per share (EPS) in FY18 for all of its new acquisitions. Its recent New Zealand acquisition is expected to add a further 10% to EPS in FY19.
So, if we assume a conservative-ish EPS of 8.2 cents per share in FY19, if it maintained its payout ratio then a 50% dividend payout ratio would be 4.1 cents, which is a grossed-up yield of 7% on the current share price. There could be more dividend increases to come after that.
WAM Global is the newest listed investment company (LIC) launched by Wilson Asset Management. It is running a different strategy to the other WAM LICs by investing in overseas shares.
The WAM LICs have been some of the best dividend shares on the ASX with how strong performance has been and the flow-on dividend payments.
I believe that global shares will offer better and more frequent opportunities than what the ASX offers – after all Australia only represents 2% to 3% of the global share market.
WAM Global has the opportunity to generate good long-term returns and that should hopefully mean a good growing dividend.
Foolish takeaway
I think and hope both of these shares are market-beaters over the next decade, that's why they're in my portfolio.
