3 dividend shares for October

The income you can get by leaving money in the bank is pretty bad these days. It’s crazy to think that with a million dollars in the bank the most you might be able to get is $30,000, with most accounts offering less of a return than that.

So, what should an income-seeking investor do?

I think Australian shares are the answer. Many experts agree that, on the income side of things, Australian share investments are hard to match for the income they can produce.

Here are three ideas:

Naos Emerging Opportunities Company Ltd (ASX: NCC)

One of the best strategies to outperform the market is to invest in small caps. Many investors don’t venture into the microcap region, so there could be quite a few hidden gems in there.

It can be quite hard to pick which small cap is worth owning, therefore it could be an idea to go with a fund manager that has a good track record.

Naos runs this listed investment company (LIC), it targets businesses with market capitalisations under $250 million – this is the small end of the ASX. Its portfolio has delivered an average annual return of 15.86% before fees but after expenses since inception in February 2013.

Naos makes high-conviction picks for portfolio, meaning its LICs usually only hold around 10 positions. Over the long-term this approach can work very well, but there can be the occasional disappointing year.

It has paid an increasing dividend each year since the second half of FY13 and it currently has a grossed-up dividend yield of 8%.

WAM Microcap Limited (ASX: WMI)

WAM Microcap is also a LIC that aims to beat the market by focusing on small businesses. Its hunting ground are shares with market capitalisations under $300 million at the time of acquisition.

The Wilson Asset Management (WAM) investment team have delivered a great first year of performance. Over the past year its portfolio has returned 30.1% before fees and expenses, which is a really good performance.

Small businesses are where the WAM team first started out, so this is getting back to the ‘roots’ of its success.

Small caps are likely to be much more volatile than the overall market, but this is the price of entering (perhaps) the best place to create wealth on the ASX.

It currently has a (regular) grossed-up dividend yield of 3.9%. However, it also just paid a special dividend because of its strong performance.

Challenger Ltd (ASX: CGF)

Challenger is Australia’s leading annuity business. There is large demand from retirees for a guaranteed source of income from their hard-earned capital. They don’t want to risk their life’s work. It’s then Challenger’s job to invest in assets like shares and property to ‘outperform’ what it pays to retirees.

Over the long-term the number of annuities heading to Challenger are expected to increase because the number of people over 65 (retirement age) is expected to increase by 40% over the next decade.

The size of annuities should also increase because of the mandatory 9.5% contributions, the tax-effectiveness of additional contributions and compounding.

The government also recently announced new budget rules where all superannuation funds are required to offer a guaranteed source of income as an option.

Challenger has been growing its underlying earnings and profit every single year for a while now. Indeed, it has grown its dividend every year since the GFC.

It currently offers a grossed-up dividend yield of 4.5%.

Foolish takeaway

All three of these businesses offer yields that are much better than term deposit rates but also offer much better growth potential too. The small-cap related LICs may be volatile in some years but they may be able to generate the largest returns.

Want another top dividend idea? Try this top ASX share which just grew its dividend by more than 30%.

The best dividend stock to buy this month

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor Tristan Harrison owns shares of Challenger Limited and WAM MICRO FPO. The Motley Fool Australia owns shares of and has recommended Challenger 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.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!