Rather than chasing high growth or high yield, I prefer the middle ground. Where companies offer an attractive income today, with growth potential for tomorrow.
This gives the best of both worlds in my view. A decent flow of dividends which also grows nicely over time is what I target. Here are 3 companies I like which fit this profile…
Sydney Airport Holdings Pty Ltd (ASX: SYD)
I think this is one of the best businesses in Australia to own. Passenger and customer numbers continue to grow, and Sydney Airport also has other growth initiatives like adding more flights to more locations, as well as adding new retail shops and accommodation options.
On top of this, Sydney Airport has strong pricing power which bodes well should inflation pick up. Shareholders have been well rewarded with distributions growing by 10% per annum over the last 5 years.
The Sydney Airport share price is down around 15% from its high, meaning shares are now much better value. Sydney Airport trades on a yield of 5.7%.
Wesfarmers Ltd (ASX: WES)
Most people don't think of Wesfarmers as offering much growth, but over the long term that's exactly what it's done. A shareholder who invested upon listing in 1984, reinvested their dividends and participated in the other capital management initiatives, would have earned a return of 19% per annum.
Wesfarmers pays out a high portion of its earnings to shareholders, which explains the high yield. Clearly, that hasn't held back long-term growth. Over the last 20 years, dividends have grown at a compound rate of 6% per annum, despite the large cut during the GFC.
With the company now focusing more on its highest returning businesses, I believe the growth outlook has improved. Wesfarmers shares currently trades on a dividend yield of 4.7%, or 6.7% including franking credits.
Carsales.com Ltd (ASX: CAR)
Carsales has historically been more of a growth stock. But it's building a reputation as a reliable income provider, and with the price falling in recent times, it now looks like a great pick for dividends and growth.
The company continues to perform well in Australia, and it also has a growing presence internationally, in Latin America and South Korea. If it can replicate the success of its online platform elsewhere in the world, that could deliver growth for many years to come.
Carsales has increased its dividend by 9% per annum over the last 5 years and now trades at around 22 times earnings. Carsales shares are down more than 20% from their recent highs and it now trades on a forecast dividend yield of 3.8%, or 5.4% including franking credits.
