I believe there are a number of ASX shares that can provide an attractive mix of income and growth for investors.
I think there are some ASX shares that offer the right mix of both:
WCM Global Growth Ltd (ASX: WQG)
This ASX share is a listed investment company (LIC). The job of a LIC is to invest in other businesses on behalf of shareholders. This particular LIC is run by California based asset management outfit WCM which was founded in 1976. The majority of WCM is owned by employees and it manages over $85.6 billion of assets.
There are two key criteria for any business to make it into the WCM portfolio. A business must have a rising competitive advantage (or expanding moat) and a corporate culture that supports the expansion of this moat. WCM believes the direction of a company’s economic moat is more important than its absolute width or size.
WCM focuses on businesses with a positive moat trajectory as measured by a rising return on invested capital (ROIC) compared to those with a large but static or declining moat. The LIC believes that corporate culture is a key determining factor for a business’ ability to achieve a consistently growing moat. I think it’s a great strategy.
ASX shares aren’t targeted by WCM Global Growth, it’s an ex-Australia fund. The businesses that make up its largest holdings include Shopify, West Pharmaceuticals, MercadoLibre, Visa, Stryker, Taiwan Semiconductor, Tencent, Lululemon Athletica, Thermo Fisher Scientific and Ansys.
It has been a very strong performer. Over the past three years its portfolio return (before expenses but after management fees) has been 22% per annum. That shows the investment strategy really works.
At the current WCM Global Growth share price it’s trading at a 15% discount to the pre-tax net at 31 August 2020. It currently offers a partially franked dividend yield of 3%.
Pacific Current Group Ltd (ASX: PAC)
Pacific describes itself as a boutique asset manager that applies its strategic resources, including capital, institutional distribution capabilities and operational expertise to help investment manager partners. It has 15 boutique asset managers across the world.
In terms of the dividend, Pacific is a very attractive ASX dividend share. The company grew its dividend by 40% to $0.35 per share in FY20. Not many businesses managed to report such a large increase to their FY20 dividend.
Pacific was able to achieve that large increase thanks to a big increase in the funds under management (FUM). In FY20 FUM, excluding acquisitions and sales, grew by 52% to $93.3 billion.
The ASX share reported that its underlying earnings per share (EPS) rose by 18% to $0.44 when excluding impairments of various assets. Pacific said that asset gathering efforts were impacted in this result due to the pandemic, so growth could be even better once COVID-19 subsides.
I’m not expecting huge capital growth from this investment idea, but steady high single digit or low double digit growth of underlying EPS could see the share price and dividend grow at an attractive rate too. The dividend doesn’t need to grow 40% per year for it to be a solid income idea at today’s prices.
Indeed, at today’s Pacific share price it offers a grossed-up dividend yield of 8.4%. The dividend has grown each year after the FY17 dividends. It’s valued at 11x FY21’s estimated earnings.
Each of these ASX shares offer a good starting yield and could also generate pleasing capital growth as long as their underlying investments continue to perform well. If you’re looking for growth then I think WCM Global Growth is the better pick, but Pacific could be a really good option for dividends for at least the next few years.