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 Limited (ASX: WGB)
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.
I think and hope both of these shares are market-beaters over the next decade, that’s why they’re in my portfolio.
Another share that could be a future dividend star is this top growth share that just grew its dividend by more than 25% and is expanding into Asia.
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 Paragon Care Limited and WAMGLOBAL FPO. The Motley Fool Australia has recommended Paragon 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.