Whether you’re a growth investor or a value investor, everyone loves a dividend. Dividends can provide insulation against stock price declines, portfolio protection during bear markets and of course, cash flow.
It takes time (and money) to build a high-yielding dividend portfolio, but you have to start with the right shares, perhaps a mix of high starting-yielding shares and dividend growth stocks.
Here are 2 ASX dividend shares in that vein that I would suggest for an income portfolio.
Commonwealth Bank of Australia (ASX: CBA)
What better way to start a dividend portfolio than the king of the ASX banks. CommBank is of course both the largest bank as well as being the largest public company in Australia – and, unsurprisingly, it pays a pretty hefty dividend of $4.31 per share (which was maintained in its most recent annual earnings). Although some of the other numbers it reported weren’t as solid (such as the 8% fall in profits), I have faith that CommBank will dominate the Australian financial sector for many years to come (and crank out dividends to boot). The current $4.31 payout equates to a dividend yield of 5.5% (or 7.85% including franking credits) and would form a great foundation for an income-focused portfolio.
REA Group Ltd (ASX: REA)
REA is your classic dividend growth stock. Its current starting yield of 1.12% doesn’t sound that impressive, but REA’s dividend payouts since 2009 resemble a staircase and have consistently grown from the 10 cent per share dividend then to the $1.17 dividend REA paid out last financial year – making it a very desirable dividend stock to buy and hold in my opinion.
Not only has REA grown its dividend consistently, its earnings have grown even faster. Between FY14 and FY18, REA’s earnings before interest, tax, depreciation and amortisation (EBITDA) have increased at an average compound annual growth rate of approximately 20%. All these statistics point to a company of the highest calibre – and if the share price unfortunately didn’t reflect this fact, I would already own shares myself.
Here we have two stocks – one with a big starting yield, and one with a fast-growing one – that would make (in my opinion) great additions to an income-based portfolio. As I alluded to, CBA shares are looking far cheaper today than REA, so some patience might be required for the latter.
For some more dividend ideas, check these Foolish favourites out!
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group 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.