I believe there are some ASX shares that offer an attractive combination of growth and income.
Businesses that are steadily growing profit are likely to see the share price rise over time. If they decide to pay dividends (or distributions) then they can also provide a growing source of income to shareholders.
Here are three ASX shares that could offer an attractive combination of income and growth:
Magellan Global Trust (ASX: MGG)
This is a listed investment trust (LIT) which invests in global businesses. Indeed, the LIT tries to invest in the best businesses across the world.
It’s run by Magellan Financial Group Ltd (ASX: MFG), with billionaire Hamish Douglass at the helm. The unlisted Magellan Global Fund, which is similar to the LIT, has been around for over a decade. Looking at the past 10 years, net returns from the unlisted fund have been 16.1% per annum. That’s a solid record.
I think Magellan Global Trust’s existing group of investments can do very well over the next few years. Some of its current largest exposures are: Alibaba, Alphabet, Atmos Energy, Eversource Energy, Microsoft, Tencent, Facebook, Visa, Mastercard and Reckitt Benckiser.
The ASX share targets a 4% distribution yield for investors. Based on the current Magellan Global Trust share price and net asset value (NAV), it’s trading at a 3% discount.
Clover Corporation Limited (ASX: CLV)
What is Clover? The company says that it has superior microencapsulation technology to enable nutritional oils, such as tuna, fish, algal and fungal oils, to be added to infant formula, foods and beverages. It claims its products reach the highest standards of purity, stability and performance, allowing customers to maximise and deliver nutrition whilst masking unpleasant taste and odour.
The Clover share price dropped 8% in reaction to the FY20 result despite it showing solid growth numbers. Sales revenue increased by 15.1% and net profit after tax (NPAT) rose by 23.6% to $12.5 million.
The company continues to see growth across the world and it’s excited by the potential for new products and partnerships, particularly in Europe after infant formula manufacturers adjust their formulations to meet the new EU standards.
There were delays at the Melody Dairies nutritional spray dryer because customer audits have been impacted by COVID-19 preventing travel, which will slow production volume initially.
If net profit can keep rising at an attractive double rate then its share price could keep rising over the coming years as well.
The ASX share also increased its final dividend by 5% to 2.5 cents. At the current Clover share price it offers a grossed-up dividend yield of 1.6%. The dividend could keep rising by double digits each year if net profit keeps growing strongly.
BWX Ltd (ASX: BWX)
BWX is a natural beauty business that manufactures and sells through a variety of brands including Sukin, Andalou Naturals and Mineral Fusion.
Before COVID-19, the natural beauty industry was growing even faster than ‘regular’ beauty.
BWX is certainly growing its market share at an impressive rate. In FY20 it grew net revenue by 26% to $187.7 million, earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 30% to $27.5 million and statutory net profit rose 59% to $15.2 million. Pleasingly, the gross profit margin improved to 58%.
I’m excited by BWX’s growth potential. It is expanding its distribution network across the world with Sukin being rolled out in the northern hemisphere. Andalou Naturals is being brought to customers in Australia.
In FY20 the ASX share grew its dividend by 44% to 3.9 cents per share. That’s a big increase, yet the dividend growth was slower than the reported statutory growth, which is a healthy way to do it.
At the current BWX share price it offers a grossed-up dividend yield of 1.1%. It’s trading at 24x FY23’s estimated earnings.
The valuations of both BWX and Clover seem reasonable for how much growth they could make over the next few years. Whilst you own them, you will receive a decent, (probably) fast-growing dividend. Magellan Global Trust offers diversification and exposure to some of the best businesses in the world, though I think it will be better value later this year.
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Returns as of 6th October 2020
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