Dividends are a really great way to receive investment returns.
Dividends are concrete, not like the ever-changing share price. Dividends are usually quite consistent. Most Australian dividends come with the bonus franking credits.
However, some investors focus far too much on short-term dividends and not enough on the longer-term outlook. High dividend yields can be a trap, the dividend could be cut.
When you think about where the dividend will be in five or so years, I think it's easier to plan what your investment income will be. Here are three dividend shares to think about for the next five years:
Rural Funds Group (ASX: RFF)
Rural Funds, a farmland real estate investment trust (REIT), aims to increase its distribution by 4% every year. It has been successful with this goal since it listed, its streak started in 2014.
The FY21 distribution guidance is 11.28 cents per unit, which currently equates to a distribution yield of 5.5%. If the distribution grows by 4% a year to FY25, the FY25 distribution would be around 13.2 cents per unit, equating to a yield of almost 6.5% at today's price.
The farmland real estate is able to generate this type of regular distribution growth with contracted rental indexation and productivity investments at its various farms. Cattle farms are the current focus of these investments. It also owns vineyards, almonds farms, macadamia farms and cotton farms.
Brickworks Limited (ASX: BKW)
Brickworks, a diversified property business which also owns property, has maintained or grown its dividend every year for over 40 years. There's every reason to believe that Brickworks can continue this streak over the next five years.
The company's diversified earnings base gives me confidence that it has the security to ride through coronavirus problems. It also has the option of investing in its building products business in Australia and/or the US, giving it greater flexibility to choose where to earn the highest return.
If you just forecast a slight 1 cent per share dividend each result to FY25, it could have an annual dividend per share of 69 cents, which translates to a grossed-up dividend yield of 5.5%.
Future Generation Investment Company Ltd (ASX: FGX)
Future Generation, a philanthropic listed investment company (LIC), aims to grow its dividend every year for shareholders. It has done so each year since 2015.
The LIC is invested in almost 20 fund managers that invest in a variety of ASX shares. The underlying Future Generation portfolio is very diverse. As long as it continues to keep some of the generated profit for more growth then the LIC can keep growing its dividend over the long-term.
The latest result was a bit of a surprise due to the size of the dividend increase. The current Future Generation yield is 6.5%. If you just estimate a slight increase of the Future Generation dividend each year to FY25, it could have a 6.2 cents per share annual dividend, amounting to an 8.1% grossed-up dividend yield.
Foolish takeaway
Each of these dividend shares has long-term dividend growth potential and are quite likely to achieve the growth. I like the look of Future Generation's dividend growth the most, particularly with its discount to the net tangible assets (NTA) today. However, I think Rural Funds may have the best chance of providing consistent growth of the distribution.
