Income is a very important part of returns for a lot of people. Dividends are generally less volatile than share price movements and can represent some, if not all, of a person’s income in retirement.
If I were to invest in dividend shares I’d want to go for businesses that have reliable dividend histories and have every chance of growing at a good rate over the coming years.
But, the potential dividend ideas also have to pay a good yield, or else I may as well keep cash in the bank.
Here are two ideas:
Clime Capital Limited (ASX: CAM)
This is a small listed investment company (LIC) that invests in a broad range of shares.
It can invest in large ASX shares like Amcor Limited (ASX: AMC), mid-cap ASX shares such as Bingo Industries Ltd (ASX: BIN), small cap ASX shares like Collins Foods Ltd (ASX: CKF) and international shares like Facebook & Baidu.
The net returns have improved considerably since including international shares into the portfolio mix and it currently offers a grossed-up dividend yield of 7.8%. It has increased its dividend each year over the past five years. It’s also trading at a decent discount to its underlying value.
WAM Research Limited (ASX: WAX)
WAM Research is one of my favourite Wilson Asset Management listed investment companies (LICs). Although it was recently trading at a very high premium to its underlying value, that has fallen again to a more manageable level after going ex-dividend.
WAM Research invests in undervalued small-cap and mid-cap shares the investment team think have a catalyst which can re-rate the business. It has been very successful with this strategy – over the past five years its portfolio has returned 16.6% per annum before fees and expenses, soundly outperforming its benchmark.
Some of its current top holdings include Bapcor Ltd (ASX: BAP) and Specialty Fashion Group Ltd (ASX: SFH).
The LIC has used this outperformance to pay a steadily-increasing dividend which has gone up every year since the GFC. It currently has a grossed-up dividend yield of 8.8%. However, it is still trading at a substantial premium to the underlying assets.
Both of these LICs have increased their income steadily over the past five years. Barring another GFC I expect both of them could remain as solid income choices. Having an average yield between them of 8.3% is far better than a term deposit.
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Motley Fool contributor Tristan Harrison owns shares of Bapcor. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia has recommended Collins Foods 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.