Traditional ASX blue-chip shares are cutting their dividends. Income investors looking for growing dividends may do well holding Carsales.Com Ltd (ASX: CAR), JB Hi-Fi Limited (ASX: JBH) and Domino’s Pizza Enterprises Ltd. (ASX: DMP).
For my analysis, I looked at 2010 to 2019 calendar years.
Carsales has grown its dividend except in 2013 when the dividend fell from 31 cents in 2012 to 28 cents in 2013. Since then, Carsales’ dividend has grown each year, as can be seen by the chart below:
Despite the headwinds, CEO Cameron McIntyre stated in a recent business update: “Our market leading position, strong customer proposition and diversification across geography and product supports our resilience and positions Carsales well into the future.”
The Carsales share price trades 28% lower from its 52-week high of $19.60. I believe this reflects the short-term uncertainty in the economy. Having said that, Carsales is a quality tech company growing its dividend in 9 out of the last 10 years and could continue to reward patient growth and income investors over the next decade.
JB Hi-Fi has rewarded patient long-term investors with a growing dividend between 2012 and 2019. While short-term headwinds are impacting the economy, JB Hi-Fi has a track record of a growing dividend, as can be seen by the chart below:
Last week on 6 May, JB Hi-Fi released a third-quarter market update detailing an acceleration in sales. It attributed the rise in sales to anticipated easing of government restrictions. New Zealand was the only market in which it experienced a decline in sales. Strong growth in JB Hi-Fi and The Good Guys more than offset the weakness.
JB Hi-Fi also secured an additional $260 million of short-term debt facilities. However, it does not expect this will be needed despite a continued withdrawal of earnings guidance for FY20.
Despite the headwinds, JB Hi-Fi is a quality company that I believe will grow its dividends over the next decade despite the immediate uncertainty. The market appears to agree, sending the JB Hi-Fi share price up 42% over the past 12 months.
Domino’s is a dividend success story, managing to increase its dividend each year between 2010 and 2019. After paying an 18 cent dividend in 2010, this has heated up to $1.15 in 2019. In addition to paying rising dividends, the Domino’s share price has rallied 38% over the past 12 months.
Domino’s is reopening stores as worldwide restrictions issued by governments begin to be eased. It is seeing a shift in how consumers are ordering, with food delivery services soaring on the back of restrictions. In recognition of this, Domino’s has hired more team members.
In financial news, the balance sheet remains strong with no committed short-term debt and more than $260 million cash as of 27 March 2020.
The company’s medium-term outlook is unchanged for new store openings of 7% to 9% per year, growth in same-store sales of 3% to 6% per year, and increased net capital expenditure of $60 million to $100 million per year.
Despite the strong financial situation, some franchisees are waiting to see if stores will be reopened, dependent on local market conditions.
On balance, Domino’s appears to be in good shape for the long term. In my view, patient long-term shareholders could see further increases in dividends.
Investing is a marathon, not a sprint. Shareholders in Carsales, JB Hi-Fi and Domino’s that have played the long game have seen both capital and income growth. I suspect this will continue and the recent uncertainty offers an opportunity to buy growing dividends at growing companies.
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Returns As of 6th October 2020
Motley Fool contributor Matthew Donald has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com Limited and Domino's Pizza Enterprises 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.
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