ASX shares are a great option for both growth and dividend income.
Businesses have the ability to make good profit and pay out some of it in the form a dividend whilst keeping the rest of the profit to re-invest for more growth in the future.
It’s hard to find businesses with the right mix of income and growth. There are some businesses like Telstra Corporation Ltd (ASX: TLS) that pay out a large proportion of their earnings, but the earnings and share price aren’t growing.
But there are some businesses that offer a good mix of both growth and dividend income:
Share 1: WCM Global Growth Ltd (ASX: WQG)
This is a listed investment company (LIC) which invests in global shares, not ASX shares. The name ‘WCM’ refers to WCM Asset Management, a manager based in California which was founded in 1976.
WCM looks for two key attributes for companies to make it into its global growth portfolio. The first is an improving competitive advantage, or in other words an expanding ‘economic moat’. The second attribute is a corporate culture that supports the expansion of this moat. WCM believes that the direction of a company’s economic moat is of more importance than its absolute width or size.
The fund manager looks for companies with a rising return on invested capital (ROIC), rather than businesses with a large but static or declining moat. The corporate culture is a key factor for a business’ ability to achieve a constantly growing moat.
So what are some shares that make it into WCM’s portfolio? The ASX share has positions in: Shopify, West Parmaceuticals, MercadoLibre, Visa, Stryker, Tencent, Lululemon Athletica, Taiwan Semiconductor, Crown Castle International and Ecolab.
As you may have noticed, there’s a focus on technology and healthcare businesses. These two sectors offer investors growth and (usually) fairly defensive earnings.
The investment returns have been strong to June 2020. The ASX share said that its portfolio has returned 20.15% per annum after management fees over the past three years – don’t forget this includes the COVID-19 market selloff a few months ago.
The dividend income part comes in with the biannual dividend that the LIC pays to shareholders. At the moment it’s committed to paying a 2 cents per share dividend as its final FY20 dividend, partially franked to 50%. That means the grossed-up dividend yield is currently 3.8%. At the current WCM Global Growth share price, the ASX share is trading at a 14% discount to its pre-tax net tangible assets (NTA) at 17 July 2020.
I believe it looks like a compelling buy today.
Share 2: Brickworks Limited (ASX: BKW)
I think Brickworks is one of the most promising non-technology ASX shares for growth.
There are three sections to Brickworks, each of them look like they have good growth prospects.
One section is its industrial property trust which it owns half of along with Goodman Group (ASX: GMG). The trust has built industrial properties on excess land that Brickworks used to own. Just like other quality real estate investment trusts (REITs), this property trust is generating reliable rental profit each year. Over the next few years the trust will see two large distribution warehouses completed and leased to Amazon and Coles Group Limited (ASX: COL). The completion of these assets should see a pleasing uptick in rental income and valuation uplift for the property trust.
Another section is Brickworks’ large shareholding of investment conglomerate ASX share Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). The investment house has been a strong dividend share for a long time and it’s steadily building its asset base with diversified businesses like TPG Telecom Ltd (ASX: TPG), Clover Corporation Limited (ASX: CLV) and Palla Pharma Ltd (ASX: PAL). Soul Patts has been delivering solid total shareholder returns for decades, so Brickworks should be able to keep benefiting here.
The last section may be the most important one. Brickworks owns building product businesses in both Australia and the US. COVID-19 has made it harder for construction businesses in the short-term, but Brickworks has set the foundations for good growth in the future when construction rebounds in both countries. I really like the company’s long-term growth plan in the US to make the operations there more efficient and profitable. I think the best time to buy a somewhat cyclical business is during the downturn.
At the current Brickworks share price it has a grossed-up dividend yield of 5%. It hasn’t cut its dividend for over four decades.
I think both of these ASX shares are trading at good value, have good growth potential and have decent starting dividend yields. I’d be happy to buy both of them for my portfolio at the current share prices.
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Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited and WCM Global Growth Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Clover Limited and PUSHPAY FPO NZX. The Motley Fool Australia owns shares of and has recommended Brickworks, Telstra Limited, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended PUSHPAY FPO NZX. 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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