Dividends are usually a great sign that things are going well at a business. Dividends mean that a company has made a profit, so it has the money to pay out a dividend.
If the dividend is steadily increasing, that's a good sign the profit is increasing too. Increasing dividends reward the shareholder, plus the rising profit should mean the share price is rising over time too.
I am always on the lookout for great dividend paying shares, ones that will increase their profits and dividend payments to me over time. Here are two that I'd buy if I were investing $20,000 today:
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Washington Soul Pattinson, also known as "Soul Patts", is an investment conglomerate similar to Warren Buffett's Berkshire Hathaway.
It owns a number of large positions in listed businesses such as TPG Telecom Ltd (ASX: TPM), Brickworks Limited (ASX: BKW), Australian Pharmaceutical Industries Ltd (ASX: API) and BKI Investment Co Ltd (ASX: BKI).
Having this diverse array of investments means it is fairly safe from a problem in any one industry, but its investments are concentrated enough to potentially outperform the market average.
It's been going since 1903 yet it's still family run, having been looked after by five generations of the Pattinson Family and three generations of the Dixson, Spence, Rowe and Letters families.
So how good have its dividends been? Well, it's paid a dividend throughout its history, even during wars and economic recessions. Excluding special dividends, Soul Patts has increased its dividend every year for the last 16 years.
I think Soul Patts would make a good investment at any time, but it could be particularly good now. Its TPG shareholding is down a lot, which means now might be a good time for a long-term investor to buy shares.
Soul Patts is trading at 23.2x FY17's estimated earnings with a grossed up dividend yield of 4.69%.
WAM Research Limited (ASX: WAX)
This is a listed investment company run by Geoff Wilson and his investment team. WAM Research is fairly similar to WAM Capital Limited (ASX: WAM), except that it's purely focused on research as opposed to paying more attention to the market like WAM Capital does.
It's provided shareholders with wonderful returns over a number of different time periods, particularly the last 12 months as it grew its underlying portfolio by 17.5%. It translates some of that investment return into dividends.
The dividend has grown every year since the GFC and grew by 6.25% in FY16. WAM Research is currently trading with a dividend yield of 7.86%.
Foolish takeaway
Both of these businesses have shown a strong track record of increasing dividends for a number of years. I think they will both be two of the best dividend payers over the next decade as well. If you're after even more dividend share ideas, you should read this report.
