Share prices can be very volatile. Each day they can go up or down by a large percentage. Some people may call this risky, but I think this is just a result of the tremendous liquidity that we get from the stock exchange.
Business profits are usually much less volatile compared to share prices. It's easier to remain calm when you remain focused on the profit number rather than the share price.
It's even easier to remain calm when you look at the dividend. A company can choose what dividend it wants to pay, assuming that it has the profit reserves to do so. A business doesn't have too much scope to 'choose' what its profit will be.
There are few businesses on the ASX with impressive dividend histories due to the GFC and Australian companies' preference to pay out a bigger dividend rather than a more consistent one.
However, these three ASX companies have increased their dividend each year over the past decade:
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Some investors like to think of Soul Patts as the Aussie version of Berkshire Hathaway. Soul Patts owns large stakes of businesses it thinks have good long-term futures like TPG Telecom Ltd (ASX: TPG). It also owns some businesses outright.
Its diverse holdings approach means that it can shift its holdings to suit the changing economic environment over the years. This makes it very adaptable, compared to most other buisnesses on the ASX.
Soul Patts has paid a dividend every single year for many decades, including through wars and recessions. It has increased its annual ordinary dividend every year since 2000 and currently has a grossed-up dividend yield of 3.5%.
InvoCare Limited (ASX: IVC)
InvoCare is the market-leading funeral operator in Australia and New Zealand. It has a market share of around a third and is expanding in regional areas with acquisitions.
The ageing population is major tailwind for InvoCare 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. This could be mean long-term growth for the dividend.
InvoCare has increased its dividend each year since 2006. I hope management find the scope to increase the FY18 dividend, even if by a tenth of a cent, as it would be shame to lose its dividend increase streak when the long-term outlook looks so positive.
It currently has a grossed-up dividend yield of 4.6%.
Ramsay Health Care Limited (ASX: RHC)
Ramsay is the largest private hospital operator in Australia and one of the largest in the world.
It has done a very good job of increasing earnings with acquisitions and profit re-investment over the past two decades.
The ageing demographics in the countries that it operates in should hopefully mean long-term profit growth with the number of people over 65 expected to increase by 75% over the next two decades. However, it faces a number of short-term issues such as private health insurance affordability.
Its dividend has increased each year since 2000 and it currently has a grossed-up dividend yield of around 3.5%.
Foolish takeaway
All three shares are quality businesses, I'm glad I hold all of them in my portfolio. However, Soul Patts is trading too expensively for me to buy today – I think it will become better value in the next year or two.
If InvoCare shares fall after its report this month then I'll likely buy shares. I'm wary of Ramsay shares at the moment, who knows when the affordability issues will be solved? If Ramsay falls to below $50 I'll consider buying another parcel.
