One of the most underrated elements of owning shares of a rapidly growing business is that they can increase their dividend payments substantially too.
If a business increases its earnings per share (EPS) by 25% then it can grow the dividend by 25% whilst keeping the exact same dividend payout ratio for shareholders.
Two of the businesses I’m talking about are these long-term winners:
REA Group Limited (ASX: REA)
This leading property portal business increased its full year dividend by 8% to $1.18 per share in FY19, which was despite the Australian property market going through one of its toughest periods in a long time.
In FY15 the company paid $0.70 per share, so an increase of 68% in just a few years has been a good way to reward long-term shareholders.
With the Australian property markets in Sydney and Melbourne back to rising prices again it could be an opportune time to be a REA Group shareholder if property sales volumes rise again as well.
REA Group currently has a grossed-up dividend yield of 1.5%.
Altium Limited (ASX: ALU)
Altium is one of the world’s best electronic PCB software businesses and it increased its FY19 dividend by 26%.
The software business is actually building up its profit reserve and bank account, with EPS up by 41% and operating cash flow up 42%, meaning it could have funded an even bigger increase if it wanted to.
Altium is predicting exceptional revenue and Altium Designer growth over the next six years, which could see the profit grow even faster. I imagine the Altium dividends could continue to grow at a double digit pace for at least the next several years unless there’s another GFC.
Its dividend yield is only 1% at the moment.
Both Altium and REA Group have really impressed investors this decade, which is why the yields are so compressed. But even now they could continue to be some of the better market performers if the profit keeps growing at a good price – it’s hard to beat quality in the investment world.
5 stocks under $5
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Tristan Harrison owns shares of Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Altium. 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.