Is it reasonable to expect share price growth AND reliable dividends from ASX shares?

There are some ASX shares that have been able to deliver a combination of both.

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Key points

  • Some ASX shares have delivered a combination of growing dividends and higher share prices
  • Some notable businesses have the capability of paying shareholders and re-investing profit for more growth
  • Soul Pattinson, Sonic Healthcare, and Rural Funds are examples of this

There is sometimes a question of whether investors should go for ASX dividend shares or ASX growth shares.

But is it possible to find both dividends and growth?

A business that is growing earnings has the ability to decide what it wants to do with its profit. Some businesses don’t pay a dividend and are investing heavily for growth, such as Xero Limited (ASX: XRO) for example.

However, some businesses may decide that they want to pay out some of the profit to reward shareholders and re-invest the rest.

Not every business is able to achieve consistent long-term profit growth, sometimes because of the nature of the industry in which it operates.

But it’s profit growth that can help drive the share price higher over time, although share prices can do anything in the short term.

There are some ASX shares that have seen share price growth and dividend growth over the last five years (and longer). However, as is always the case, nothing is certain about the next five years.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Pattinson is an investment house that operates a diversified investment house. In its portfolio are names like TPG Telecom Ltd (ASX: TPG), Tuas Ltd (ASX: TUA), Brickworks Limited (ASX: BKW), New Hope Corporation Limited (ASX: NHC), Macquarie Group Ltd (ASX: MQG), Commonwealth Bank of Australia (ASX: CBA), and BHP Group Ltd (ASX: BHP).

It has taken the approach of steadily growing its dividend every year since 2000. Soul Pattinson’s own investments can grow their dividends to Soul Pattinson shareholders and the investment house keeps some of its profit/cash flow each to invest in more opportunities. For example, in the FY22 half-year result, it paid out 57.3% of its regular operating cash flows.

Over the last five years, the Soul Pattinson share price has risen almost 50% at the time of writing.

Sonic Healthcare Ltd (ASX: SHL)

Sonic Healthcare is another ASX share that has been growing its dividend every year and it has seen share price growth. Over the last five years, the Sonic Healthcare share price has risen by more than 60%. It has also been growing its dividend.

The company is a global pathology business with operations across Australia, the USA, Germany, the UK, Switzerland, Belgium, and New Zealand.

Sonic is benefiting from the tailwinds of ageing demographics and has seen significant COVID-19 test earnings. The business has been re-investing its profit into making acquisitions while also paying a bigger dividend with its progressive dividend policy. In the first half of FY22, it grew its net profit after tax (NPAT) by 22% while increasing the interim dividend by 11%.

In the first half of FY22, it made $585 million of acquisitions including ProPath in Dallas with US$110 million of revenue and Canberra Imaging Group with $60 million of revenue.

Rural Funds Group (ASX: RFF)

Rural Funds is a farmland real estate investment trust (REIT) that owns farmland across the agricultural sectors of cattle, macadamias, almonds, vineyards, and cropping (cotton and sugar).

The business generates rental profit each year, which is referred to as ‘adjusted funds from operations’ (AFFO). Most years, Rural Funds retains some of its AFFO and re-invests in achieving more economic value from its farms such as productivity improvements or changing the farm type to a more profitable crop (such as macadamias).

Rural Funds aims to increase its distribution by 4% per annum. Over the last five years, the Rural Funds share price has gone up by 67%.

Motley Fool contributor Tristan Harrison has positions in RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, Washington H. Soul Pattinson and Company Limited, and Xero. The Motley Fool Australia has positions in and has recommended Brickworks, RURALFUNDS STAPLED, Washington H. Soul Pattinson and Company Limited, and Xero. The Motley Fool Australia has recommended Macquarie Group Limited, Sonic Healthcare Limited, and TPG Telecom Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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