It may seem counterintuitive, but if you’re looking for the best dividend shares to own, it doesn’t necessarily mean you should be buying the ones with the most attractive yields.
I think the best example of this is biotherapeutics company CSL Limited (ASX: CSL).
Very few people think about dividends when they think of CSL. I feel this is completely understandable, given that its shares only offer a trailing 1% dividend yield.
However, anyone that invested in the CSL IPO will not agree with this view. I suspect they will be counting down the days to the next dividend payment from the healthcare giant.
As I mentioned here recently, if you were lucky enough to buy CSL’s shares at its IPO, you could’ve picked them up for a stock-split-adjusted price of $0.76 per share.
Let’s say you bought $20,000 worth of its shares at that point. You would have ended up with approximately 26,316 shares.
We’re not going to focus on what they would be worth today (a lot!), instead we’re going to focus on the dividends these shares would have received this year.
Over the last 12 months, CSL has paid its shareholders two dividends. A final dividend in October 2019 of $1.455 per share and an interim dividend in April of $1.471 per share. Combined, that’s a total of $2.926 per share.
This means that those 26,316 shares you received from a $20,000 investment at its IPO, generated $77,000 of dividends over the last 12 months. That’s almost four times the original investment!
I feel this demonstrates why companies with strong growth potential can become dividend stars even if they only offer small yields.
Which shares could be future dividend stars?
I think three growth shares that could become future dividend stars are fintech company Bravura Solutions Ltd (ASX: BVS), lottery ticket seller Jumbo Interactive Ltd (ASX: JIN), and ecommerce company Kogan.com Ltd (ASX: KGN).
At present Bravura’s shares offer a 2% yield, Jumbo offers a 3.1% yield, and Kogan offers a 1.4% yield.
I believe all three are well-positioned for long term growth thanks to favourable tailwinds, strong businesses, and massive market opportunities. This could make it worth buying them today for the dividends of tomorrow.
Where to invest $1,000 right now
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Bravura Solutions Ltd and CSL Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive Limited and Kogan.com ltd. The Motley Fool Australia has recommended Bravura Solutions 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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