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How to get a large dividend yield from ASX growth shares


Do you want to get a large dividend yield from ASX growth shares?

Sounds a bit difficult doesn’t it? How can a business grow at a fast pace whilst also having a high dividend yield? You could get very lucky and recognise a fast-growing business which has a high yield before the market bids it up such as Magellan Financial Group Ltd (ASX: MFG) and Dicker Data Ltd (ASX: DDR).

But I think there are two methods that are easier to identify.

Growth shares that are paying dividends

My best investment by far has been Altium Limited (ASX: ALU). I’m not about to say Altium has a high dividend yield today, but I’m now getting a double-digit dividend yield on my purchase price thanks to the decent starting yield and fast dividend growth. 

New investors in growth shares won’t get a huge yield, but after a few years it can compound into much larger yields.

Various businesses have increased their dividend payment enormously over several years. Examples include Domino’s Pizza Enterprises Ltd. (ASX: DMP), REA Group Limited (ASX: REA), CSL Limited (ASX: CSL), Bapcor Ltd (ASX: BAP), Service Stream Limited (ASX: SSM) and so on.

It’s quite hard to find good value growth shares that have a solid starting yield these days due to the low interest rates.

Looking out five years, I think the share with the best chance of growing the yield to double digits is Webjet Limited (ASX: WEB). In my opinion, other growth candidates which pay dividends and could pay a 10% yield in five or so years are: Citadel Group Ltd (ASX: CGL), Duxton Water Ltd (ASX: D2O) and Kogan.Com Ltd (ASX: KGN).

Listed investment companies (LICs)

The benefit of operating as a company means that an investment manager can turn capital gains into steadily growing dividends for shareholders assuming they make enough profit to fund those dividends.

The LIC can do the investing in growth shares and then you, the shareholder, get to receive most of the profit in the form of a high dividend. It can be unsustainable if LICs pay out dividends that are too big, but there are a few that have found the right balance (so far).

Some examples include:

WAM Research Limited (ASX: WAX) has a grossed-up dividend yield of 9.8%.

Naos Emerging Opportunities Company Ltd (ASX: NCC) has a grossed-up dividend yield of 10.3%.

Future Generation Investment Company Ltd (ASX: FGX) has a grossed-up dividend yield of 6.5%.

Foolish takeaway

Investing in LICs is easier and more of a passive approach because you’re letting investment managers do the work for you. However, picking the right growth shares will lead to better compound total returns, particularly when you consider the negative effect of fees and taxes (both corporate tax for the LIC and income taxes for the individuals) that arise from LICs.

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Tristan Harrison owns shares of DUXTON FPO and FUTURE GEN FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Bapcor and Dicker Data Limited. The Motley Fool Australia has recommended Citadel Group Ltd, Domino's Pizza Enterprises Limited, DUXTON FPO, ltd, REA Group Limited, Service Stream Limited, and Webjet Ltd. 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.

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