There are some ASX shares that are growing their dividends rapidly, much faster than the current inflation rate.
Dividends are a way for businesses to reward shareholders whilst the company is growing over the long-term.
Whilst the starting dividend yield is low, the dividend growth over time can turn the yield on cost into a larger yield over time, whilst hopefully benefiting from capital growth.
Here are three of those ASX shares growing dividends at a fast pace:
Kogan.com Ltd (ASX: KGN)
In FY20 it grew its total dividend by 64.6% to 13.5 cents per share.
Kogan.com is an e-commerce ASX share that was founded by Ruslan Kogan. It’s now one of the largest online retail companies in Australia.
A large number of products are sold through its websites including TVs, computers, phones appliances, furniture and clothes. It also sells other services like mobile plans, internet, energy and insurance.
The dividend growth by the ASX share was largely matched by the profit growth. Kogan.com’s FY20 net profit after tax rose by 55.9% to $26.8 million, driven by gross sales growth of 39.3%.
Using Commsec data, the Kogan.com share price is valued at 25x FY23’s estimated earnings. It’s projected to have a FY23 dividend of 46.7 cents per share, which would be a grossed-up dividend yield of 4.1%.
Altium Limited (ASX: ALU)
In FY20 Altium grew its total dividend by 15% to AU$0.39 per share.
Altium is an electronic PCB software business with various offerings for different clients. Altium Designer is the flagship offering, which the company is aiming to reach global market leadership with by 2025 with a goal of 100,000 Altium Designer subscribers.
The ASX share has grown its profit significantly over the past five years, which helped fund the dividend increase last financial year after normalised earnings per share (EPS) only grew by 5% in FY20.
Altium recently announced that it was going to restructure the business to focus towards its cloud offering called Altium 365. It sees an opportunity for direct monetisation opportunities either through transaction fees on manufacturing (like an Airbnb model) and/or premium services (like the Amazon Prime model).
Looking at Commsec data, the Altium share price is priced at 44x FY23’s estimated earnings. It also has a projected FY23 dividend per share of $0.754. That translates to an unfranked dividend yield of 2.1%.
Hub24 Ltd (ASX: HUB)
The ASX share decided to increase its FY20 full year dividend by 52% to 7 cents per share.
Hub24 is a fintech business that connects advisers and clients. It has an investment and superannuation platform that gives broad product choices and can be personalised based on the adviser and client. It serves a growing number of large financial services companies.
In FY20 Hub24 grew platform revenue by 37% and its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) went up by 60%.
Profit growth for the ASX share is driven by funds under administration (FUA) growth. In the three months to 30 September 2020, it grew FUA by 32% over the prior corresponding period to $19 billion. It saw record net inflows for a September quarter of $1.36 billion. This helped the Hub24 platform market share increase to 2.1%.
However, Hub24 said it’s continue to absorb some of the impact of the historically low interest rate since the RBA reduced the cash rate earlier in 2020.
Using Commsec estimates, the Hub24 share price is valued at 39x FY23’s estimated earnings. It’s also projected to pay a dividend of $0.269 per share, which equates to a grossed-up dividend yield of 1.8%.
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Tristan Harrison owns shares of Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Hub24 Ltd and Kogan.com ltd. The Motley Fool Australia has recommended Hub24 Ltd and Kogan.com ltd. 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.