Many share market investors will appreciate the big dividend yields on offer in Australia compared to US markets for example where companies prefer to reinvest for growth or conduct share buybacks as a means of capital allocation over paying dividends.
In fact some companies in Australia openly payout up to 100% of their profits as dividends which means they can pay big dividends to investors. However, it's no use buying a dividend share if the value of your capital falls further than your annual dividend payments.
So if you're planning on building a strong income stream in retirement over say a 5 to 10-year or more period then you'll need to find companies with strong competitive positions or advantages to help them defend their annual profits.
Earnings pay dividends so if a company can grow its profits and earnings at the same time it's very likely to produce share price growth and income over the long term.
Below are three solid companies that manage to produce consistent earnings growth and big dividends via high payout ratios.
ASX Ltd (ASX: ASX) operates the local stock, derivative and options trading exchange and is a regulated monopoly other than some minor competition from start-up Chi-X. It has now grown earnings per share (EPS) for 6 years in a row with EPS growing 7.1% to $2.40 in FY 2018. That places it on around 25.6x trailing earnings with a trailing dividend yield of 3.5% plus full franking credits. It's likely to deliver reasonable long-term total returns to conservative investors.
Sydney Airport Holdings Pty Ltd's (ASX: SYD) share price is down 9% over the past year despite the airport reporting strong growth in its core financial and operating metrics such as the number of passengers passing through the airport on a monthly basis. The airport expects to pay out 37.5 cents per share in dividends over FY 2019 which puts it on a yield of 5.5%. It is also a monopoly-type asset likely to last the lifetime of anyone old enough to invest today.
JB Hi-Fi Limited (ASX: TCL) is the electronic goods retailer that has a dominant market position in the town and city centres of Australia. It grew earnings per share 9.2% to $2.03 in FY 2018 and the dividend was up 14 cents to $1.32 per share. This puts it on a trailing yield of 5.7% and just 11.5x earnings. It could produce excellent total returns if its strategy to fight off overseas competition succeeds.