There are not many ASX shares on which I'd be confident paying a large and growing dividend over the next few years.
Some of the ASX's biggest dividend payers operate in cyclical/low-growth industries, which may see stunted profit growth over the next two or three years. I'm mainly thinking of ASX mining shares and ASX bank shares.
While businesses having a higher dividend payout ratio can boost cash returns, it means the business has less cash to reinvest for more growth.
But in my eyes, there are a few businesses that can pay high dividends and grow them along with earnings in the coming years.
Telstra Group Ltd (ASX: TLS)
As the largest telecommunications business in Australia, the company has the best financial foundations in the industry to invest in its network.
Telstra is spending everything it needs to carry out its business plans to build its 5G and cable infrastructure. After receiving revenue and paying its expenses, the remaining money can be paid to shareholders as dividends.
The ASX share's market-leading network continues to attract hundreds of thousands of new subscribers each year. These subscribers use the same infrastructure, so the extra revenue can largely increase the company's profit metrics.
Telstra's rising profit is helping fund a growing dividend, and I believe the payout per share can keep increasing for at least the next few years.
The business paid an annual dividend per share of 18 cents in FY24, which is a grossed-up dividend yield of 6.5% (including the franking credits). Projections on Commsec suggest Telstra's annual dividend per share could increase to 19 cents in FY25 and 20 cents in FY26. That translates into forward grossed-up dividend yields of 6.9% and 7.3%, respectively.
GQG Partners Inc (ASX: GQG)
GQG is a relatively large fund manager with around US$160 billion of funds under management (FUM) spread across four main strategies: US shares, international shares, global shares and emerging market shares.
Pleasingly, fund managers don't need a 10% bigger office or 10% more employees to manage 10% more FUM. In other words, they can be highly scalable, requiring minimal capital to sustain growth. GQG has committed to a dividend payout ratio of 90% of distributable earnings (a profit measure used by GQG).
In my opinion, the most important thing for a fund manager is that it delivers good investment returns for its clients. The returns can attract new money from investors, and the ASX share can also organically grow the FUM. GQG's revenue and net profit are significantly linked to the FUM, so the significant growth the business has seen is good news for short-term dividends.
In the FY24 half-year result, the ASX share's average FUM rose 46.5% to US$139.5 billion, helping distributable earnings grow 53.7% to US$210 million and the dividend per share increase 46.3% to US5.66 cents.
The estimates on Commsec suggest GQG could pay a dividend yield of 8% in FY24, 9.1% in FY25 and 9.9% in FY26.
