I think one of the best ways to set yourself up for an early retirement is by having a passive income stream that is reliable and has the potential to grow over time.
But this doesn't necessarily mean you should buy the highest yielding shares on the ASX.
Instead, I would suggest you buy shares which pay dividends (even if the yield is small) and have the potential to grow them strongly over the next decade or two.
Two that I think tick a lot of boxes are listed below. Here's why I would buy them:
Goodman Group (ASX: GMG)
I think Goodman Group would be a great option for investors. I'm a big fan of the integrated commercial and industrial property group due to the way its portfolio is positioned. The quality of its portfolio has been on display for all to see in FY 2020. Despite the pandemic, Goodman has been able to reaffirm its earnings and distribution guidance this year.
This is because of its exposure to in-demand markets such as ecommerce, logistics, food, consumer goods, and the digital economy. I'm confident these positive trends will continue for some time to come. This should put Goodman in a strong position to deliver solid earnings and distribution growth for a long time to come. At present its shares offer an estimated forward 1.9% distribution yield.
Treasury Wine Estates Ltd (ASX: TWE)
Another option to consider is this wine company. Although its performance in FY 2020 has been disappointing (and not just because of the pandemic), I feel Treasury Wine is now on a path to sustainable growth. Especially after announcing its intention to spin off its Penfolds business and associated assets into a separate ASX listed company. Management believes the demerger will facilitate the creation of incremental long-term value for shareholders and I agree.
In light of this, now could be an opportune time to make a patient long term investment in its shares. Not least for its dividend. While I expect its to be cut down to a level that provides a ~2.5% yield in FY 2021, I suspect it could be back to previous levels in FY 2022 once things normalise again. This would be a fully franked 3.7% yield based on FY 2019's dividend. After which, I expect it to grow at a decent rate over the decade that follows.
