The best way to measure how well a share has done is not just its share price growth, not just its dividends, but the total shareholder return. This is a combination of both dividends and the share price growth.
Share prices can be volatile, whereas dividends are absolute and concrete once paid. So perhaps for some investors the best strategy is to find shares that will provide a market-beating total return, but deliver a majority of the return as dividends.
Here are two businesses that I think will fit the bill:
WAM Research Limited (ASX: WAX)
WAM Research is one of the listed investment companies run by Geoff Wilson and his investment team, with a market capitalisation of $279 million it's a fair bit smaller than the flagship WAM Capital Limited (ASX: WAM).
It focuses purely on research as opposed to taking into account market movements as well, which is working well because the underlying portfolio grew by 17.5% over the last 12 months.
I think WAM Research is a better option than WAM Capital because of its research driven approach and it has a bigger profit reserve with management planning to pay out increased dividends over the next couple of years.
In its latest investment update (31 December 2016), it disclosed that 46% of its portfolio is cash, meaning it has protection against a market crash and ammo for market opportunities. It's currently trading with a trailing grossed up dividend yield of 7.96%.
Japara Healthcare Ltd (ASX: JHC)
Japara is one of the large listed aged care operators with a market capitalisation of $526 million.
The number of people reaching the age where they need help looking after themselves is expected to double over the coming decades, meaning there will be much higher demand for aged care places, all the elderly have to be looked after somewhere. Japara is well placed to meet this demand with a number of greenfield and brownfield projects.
There has been a lot of controversy about the aged care sector's funding in recent months, but whether the government or the resident pays, the aged care operator will still likely grow its revenue and profit per resident.
Japara is trading at 17x FY16's earnings with a grossed up dividend yield of 8.28%.
Time to buy?
I think WAM Research is a great stock to buy today and keep building a position in over the years as it grows. Japara's current price weakness makes it a buy today in my eyes and any mention of reduced funding for the sector in the future could be a good time to buy more. For another great dividend stock, you should read our latest report on this business.
