ASX growth shares could be an underrated way to unlock important cash flow. Certainly, ASX dividend shares that offer high starting dividend yields aren't the only way to achieve real cash returns.
It's simple enough to envisage a $100,000 portfolio of income stocks that would pay thousands of dollars in dividends.
Names like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), and Woodside Energy Group Ltd (ASX: WDS) may pay a decent yield today but they may not achieve a strong capital compound annual growth rate (CAGR) from here.
However, I think there are a couple of ways that ASX growth shares can achieve good cash flow for investors.
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Strong dividend growth
There are plenty of businesses on the ASX that don't have dividend yields of more than 3%. That could be because of a combination of lower dividend payout ratios as well as higher price/earnings (P/E) ratios.
This could reflect the fact the business is retaining more of its profit to reinvest (therefore, it has a lower payout ratio) and the market is pricing the business for a higher earnings growth rate.
Some ASX growth shares have achieved enormous dividend growth because their payouts are growing along with their earnings growth.
For example, Lovisa Holdings Ltd (ASX: LOV) shares paid an annual dividend per share of 17.6 cents in FY17, which had grown to 74 cents per share in FY22.
Hub24 Ltd (ASX: HUB) has grown its annual dividend per share from 4.6 cents in FY19, up to 20 cents per share in FY22.
Johns Lyng Group Ltd (ASX: JLG) shares paid an annual dividend of 3 cents per share in FY19 and this has grown to 5.7 cents per share in FY22.
Netwealth Group Ltd (ASX: NWL) shares paid an annual dividend per share of 10.6 cents in FY18 and this had grown to 20 cents per share in FY22.
TechnologyOne Ltd (ASX: TNE) shares paid a dividend per share of 5.6 cents in FY13, which had grown to 17 cents in FY22.
What I'm trying to show here is that even if a dividend yield is 1.5% or 2% today, if the dividend quickly doubles or triples then the yield has become decent and that dividend could keep growing strongly.
Sell-down ASX growth shares
If an investor had a $100,000 portfolio of ASX growth shares, investors will hopefully see a certain level of capital growth over time.
Instead of receiving dividends, investors could decide to sell a portion of their investment and use the cash from that sale.
For example, if a $100,000 growth portfolio increased by 10% in a year then it would gain $10,000. An investor could sell $5,000, access that money, and be left with a portfolio worth $105,000.
If the growth portfolio worth $105,000 grew by 10% again, an investor would have $115,500. An investor could then sell $5,000 or $5,500 of those shares and be left with around $110,000.
One benefit of this strategy is that if an Australian taxpayer holds an investment for more than 12 months by the time of the sale, the gain can be eligible for a capital gains tax discount which can halve the taxable gain.
Of course, growth isn't guaranteed every year. In some years, the growth could be less than 10% but, of course, in other years, it could be stronger.
