How growing dividend shares can supercharge your income

The biggest yields may not always be the best…

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ASX shares profit upgrade chart showing growth

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While buying shares with big dividend yields might seem like the best way to generate a passive income, it can sometimes pay to be patient.

For example, very few investors would look at Altium Limited (ASX: ALU) as a dividend share. After all, at present it offers a yield of just 1.4%. However, if you had bought Altium shares five years ago when its shares were trading at $6.48, you would feel very differently.

Over the last 12 months, the electronic design software provider has paid its shareholders dividends totalling 38 cents per share. This means that investors that snapped up shares in 2016 are now receiving a yield on cost of almost 6%.

And with Altium confident it will more than double its revenue over the next five years, it is conceivable that it will also more than double its dividend during this time. This would mean that those longer term investors would be earning a yield on cost of ~12% at that point.

Overall, I feel this demonstrates why companies with growing dividends can be worth considering. And with that in mind, here is a dividend share which is also growing its dividends at a solid rate:

Bapcor Ltd (ASX: BAP)

Bapcor is the Asia Pacific’s leading provider of vehicle parts, accessories, equipment, service and solutions. It is also the name behind a number of retail brands such as Autobarn, Burson Auto Parts and Midas. Thanks to its strong market position and its expansion plans, Bapcor is being tipped for long term growth.

For example, Citi is expecting Bapcor to grow its fully franked dividend to 19 cents per share in FY 2021 and then 22 cents per share in FY 2022.

Based on the current Bapcor share price of $8.40, this will mean yields of 2.3% and 2.6%, respectively. Citi has a buy rating and $9.50 price target on the company’s shares.

Should you invest $1,000 in Bapcor right now?

Before you consider Bapcor, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Bapcor wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Altium. The Motley Fool Australia owns shares of and has recommended Altium and Bapcor. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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