There aren't too many ASX shares that offer an attractive mix of income and growth.
Some ASX shares are known for growth like Xero Limited (ASX: XRO). Others are known for income such as Telstra Corporation Ltd (ASX: TLS). But there aren't many businesses offering a good mix of both.
Here are two ASX shares I'd buy that offer a mix of income and growth:
Citadel Group Ltd (ASX: CGL)
I think that Citadel is a very compelling ASX share with good growth potential.
The FY20 result was announced today. The statutory result was a little messy with a few 'significant items' which included costs relating to the Wellbeing acquisition. When looking at the underlying result, Citadel had a strong year with revenue growth of 29.4%, gross profit growth of 24% and earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 25.3%. I think these were solid numbers.
FY21 is set up to be a strong year with a full year contribution from Wellbeing, a UK health software business. Not only is there at least $1.5 million of annualised cost savings from a synergy program, but there is a number of good cross-selling opportunities. Citadel says that the majority of health software has recurring revenue – around 77% – and it is at a high margin (approximately 79%).
I'm excited by the prospect of the company expanding in several different sectors such as construction, local government and health. The ASX share revealed that it has a "strong" merger and acquisition pipeline focused on scalable software opportunities that build on existing capabilities.
The Citadel board declared an annual dividend of 10.8 cents per share for FY20. At the current Citadel share price that equates to a grossed-up dividend yield of 3.4%. As profit grows the company will be able to grow its dividend whilst also investing for growth.
I think the Wellbeing acquisition is transformational for Citadel. The Citadel share price is currently trading at under 14x FY22's estimated earnings. Compared to plenty of other ASX tech shares, I think this is attractive value.
WAM Global Limited (ASX: WGB)
WAM Global is a listed investment company (LIC) that is operated by the high-performing outfit, Wilson Asset Management.
The idea behind WAM Global is to bring the investment strategy that has worked well for WAM Capital Limited (ASX: WAM) to the global share market. So it's aiming for undervalued global growth companies.
WAM Global sometimes goes for smaller businesses than some other globally-focused Australian fund managers may go for.
At 31 July 2020, some of its biggest holdings included: CME Group, Electronic Arts, Hello Fresh, Hasbro, Edwards and Dollar General. However, it also owns some larger businesses like Tencent, Microsoft and Lowe's. These are high quality ideas.
Over FY20, the WAM Global portfolio's gross return was 3.1%, outperforming the MSCI World SMID Cap Index in AUD terms by 5%. Over the longer-term I expect WAM Global will be able to produce solid gross returns.
As a LIC, WAM Global can generate investment returns. It can then steadily pay out some of that profit as a smoothed dividend for shareholders.
The ASX share grew its FY20 final dividend by 100% to 4 cents per share, bringing the full year dividend to 7 cents per share. This is more than I was expecting, I was only thinking it would be 6 cents per share.
WAM Global had a profit reserve of 30.1 cents at 31 July 2020. This is 4.3 years of dividend coverage for shareholders.
At the current WAM Global share price it has a grossed-up dividend yield of 4.6% and it's trading at a 6% discount to the net tangible assets (NTA) per share at 31 July 2020.
Foolish takeaway
I think both of these ASX shares offer an attractive combination of potential growth and income despite global COVID-19 impacts. I think WAM Global will be a pleasing ASX dividend share. Citadel has plenty of capital growth potential in my opinion. I think Citadel will produce the stronger total returns over the next five years, so it would be the one I'd pick with a decent starting dividend.
