Some ASX growth investors dismiss the idea of dividends and dividend income entirely. After all, if you don’t need the income today, why would you buy a company weakening its balance sheet every 6 months by shovelling cash out the door.
But dividends have advantages of their own (not least franking credits) that can help any investor accumulate wealth faster. This choice isn’t always mutually exclusive. There are some ASX shares that offer investors both dividend income today, as well as the opportunity for significant future capital growth tomorrow.
Here are (in my opinion) two such shares.
Telstra Corporation Ltd (ASX: TLS)
Telstra is not the kind of company that has a reputation for growth. It’s Australia’s largest telco that makes a crust selling phones, data plans and fixed-line broadband internet. It does have a reputation for dividend income, however. On current prices, Telstra shares are offering investors a trailing dividend yield of 5.1%, or 7.20% grossed-up (based on Telstra’s annualised 16 cents per share dividend over the past 12 months).
That’s a fine yield to be sure, but I also think Telstra has significant growth potential in front of it. That’s because the company is heavily investing in the rollout of 5G technology. 5G is the next ‘big leap’ in mobile internet and promises many new applications like NBN-beating speeds and the Internet of Things.
If all goes well with 5G in the next few years, I see Telstra as a stock with both income and growth potential.
Magellan Global Trust (ASX: MGG)
This share isn’t one company, but a listed investment trust (LIT) consisting of an entire portfolio of companies. But not just any companies. Magellan Global Trust has a management team that selects companies from all over the globe that they think are the ‘world’s best’. Right now, these include Facebook, Alibaba, Alphabet (Google), Visa and Tencent, amongst others. All of these names are growth engines that have helped this LIT deliver a performance of 12% per annum since its inception in 2017.
But one of the great features of MGG is that its also geared for income as well. The trust aims to provide its investors with a 4% distribution yield every year, which you can either choose to receive in cash or reinvest at a discount. In this way, I think Magellan Global Trust is a great share to hold for both capital growth and dividend income.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Sebastian Bowen owns shares of Alphabet (A shares), Facebook, Telstra Limited, and Visa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Facebook, and Visa. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Alphabet (A shares) and Facebook. 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.