ASX dividend stocks are a great place to generate a source of income.
Especially if you're prepared to be patient and make a long-term investment.
That's because of the power of compounding, which is what happens when you generate returns on top of returns.
A prime example of this is CSL Limited (ASX: CSL). With a dividend yield in the region of 1.1%, few investors would consider it as an ASX dividend stock. Especially in the current environment where you can earn 3% to 4% from savings accounts.
However, long term investors in the biotechnology giant's shares may think very differently. In fact, they may look forward to the company's dividend payments every six months more so than any other.
This is because of something called the yield on cost. This is simply the dividend yield based on your buy price.
20 years ago you could have picked up CSL shares for $17.47. Let's imagine you'd invested $10,000 into its shares at this price. What dividends would you receive now?
In FY 2024, Goldman Sachs expects the company to pay a US$2.70 (A$4.03) per share dividend. Based on your cost price, this equates to a dividend yield of 23%, which means dividend payments of $2,300 from your $10,000 investment.
You won't find that kind of yield on any savings accounts!
But which ASX dividend stock could be a good buy and hold today?
One ASX dividend stock that could be worth considering is Lovisa Holdings Ltd (ASX: LOV).
It already offers an attractive 3% yield, and with bucketloads of growth ahead of it, this yield could increase massively over the next decade and beyond.
Morgans appears to believe this could be the case due to its global expansion plans. It recently stated:
LOV may just prove to be one of the biggest success stories in Australian retail. LOV is showing every sign of becoming a global brand.
The broker currently has an add rating and a $27.50 price target on the ASX dividend stock, which implies a potential upside of 22% for investors.
