As an income-focused investor, my favourite metric to measure performance is dividend growth. High yield companies, I accept, will have lower growth in dividends. For lower yield companies, I expect that dividend to grow strongly over time.
Like a salary, a lower starting income is OK, if our income is going to grow quickly over the years.
Here are 2 companies who are managing to do just that…
Ramsay Health Care Limited (ASX: RHC)
The market has fallen well out of love with Ramsay Health Care, with shares down more than 30% from their peak in 2016. The outlook for lower growth in the next couple of years has investors spooked. But if you believe in the long-term tailwinds of strong population growth in Australia and an ageing population globally, and you’re satisfied Ramsay is still a solid hospital operator, then this could be a buying opportunity.
Ramsay has been a great long-term performer and delivered strong dividend growth. It has one of the best track records on the ASX in this area. Dividends have grown at a rate of 16% per annum over the last decade, and dividends have increased every single year since 2000. The only other company to achieve this is investment conglomerate Washington H Soul Pattinson & Co. Ltd (ASX: SOL).
Shares currently trade on a dividend yield of 3.7% including franking credits.
Transurban Group (ASX: TCL)
The toll road king has been a solid long-term performer. It continues to increase its portfolio of roads in Australia and overseas while rewarding shareholders with increasing cash payments.
The cities that Transurban operates in are set to have strong continued population growth over the long term. Combine that with mandated toll increases and it’s hard to see a future where Transurban has lower earnings. Autonomous cars are a possible risk, causing there to be fewer cars on the road. But it’s also possible it could increase the number of trips taken by road, as the predicted low cost of autonomous vehicles would make public transport less appealing.
As for income, Transurban has grown its distribution to shareholders at roughly double-digit rates since the GFC. That’s pretty impressive, considering it’s hardly a cutting-edge, exciting business. I expect distributions to keep growing at a solid rate over the next decade.
Transurban currently trades on a yield of 5%.
These are solid businesses, each with a good track record of earnings and dividend growth. I think both have bright futures and shareholders should be well rewarded with a growing income stream.
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Motley Fool contributor Dave Gow owns shares of Ramsay Health Care Limited, Transurban Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Transurban Group and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Ramsay Health 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.