Different investors will have different investment objectives, for example retirees not receiving a pay check every fortnight anymore will probably want big dividends to maintain an enjoyable lifestyle in retirement.
While those in the work force with a 5 to 10-year investment horizon should be more focused on capital growth by finding companies that reinvest operating cash flows into new growth projects.
So here's a couple of picks that offer investors a decent dividend yield in one case, and the potential for capital growth and dividends in the other case.
The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price is up 78% over the last 5 years from $3.82 to $6.78 and that's not including the beneficial effects of big dividend payments for income seekers.
In fact the airport offers a current yield of 5.5% based on its own estimates for dividends per share of 37.5 cents over calendar year 2018. In 2015 the monopoly-like asset paid just 25.5 cents per share in dividends.
It's also a big beneficiary of rising passenger growth as this helps it grow aeronautical fees as more planes leave and arrive. More passengers also mean more non-aeronautical fees such as parking and retail rents.
Much of the passenger growth is coming about due to the rise of the Chinese and wider Asian middle class that is increasingly visiting Australia. This looks like a long-term trend and helps the airport grow the earnings that pay the dividends.
Debt is a risk at 6.7x EBITDA, alongside rising interest rates due to the debt. While it's also a possible an economic slowdown or 'act of god' sends the shares into a tailspin. However, for dividend seekers it looks a good bet.
CSL Limited (ASX: CSL) is the healthcare business that sells blood product treatments, and influenza vaccines to the public and private healthcare sector around the world. Its shares are up 166% over the past 5 years.
CSL is a success because it does not pay all its cash flows out in dividends, rather it invests a lot of it in developing new products that will help it grow profits over the medium term. In 2018 it invested $702 million in research and development while still paying out around A$2.28 per share in dividends.
Today it presented to investors on dozens of new drugs it has in development including CSL 112 which is commonly touted as a potentially blockbuster new drug in treating heart attack patients. Net debt to EBITDA is 1.3x and the business is at risk from competition. It's also highly valued, but for investors focused on longer term capital growth it looks a good bet.
