The share market has delivered an average return of around 10% a year going back decades. That 10% return is a combination of both dividends and share price growth.
Over the long term it's usually 'growth' stocks that provide the stronger return and dividends are just a bonus on top.
I think there are many opportunities on the ASX to outperform the market over the long term, here are just three of them:
REA Group Limited (ASX: REA)
REA Group is the owner of realestate.com.au and several other leading websites in Australia. It has a market-leading position which recently allowed it to increase its prices by 10%. When the fee is such a small part of the advertising budget, it makes it easy to justify spending that little bit extra.
REA also has a growing network of websites overseas, including the iProperty websites in South East Asia and its 20% ownership of Move Inc. A slowdown in the Australia property market could provide the perfect opportunity to buy shares in REA Group, anything under $50 would be a good buy.
REA Group is trading at 29x FY17's estimated earnings with a grossed up dividend yield of 2.28%.
National Veterinary Care Ltd (ASX: NVL)
National Veterinary Care is a fairly recent addition to the ASX. It's purely a vet business, as opposed to Greencross Limited (ASX: GXL) that has retail stores too. A number of management are actually ex-Greencross, so if they can replicate the success of Greencross in its early stages, it will do very well.
The number of pets in Australia is likely to grow as the human population increases, which will provide a growing tailwind for vets. National Vet Care is expected to acquire a large amount of practices over the coming years.
It's trading at a very high price/earnings ratio, but if all the vet practices owned at 30 June 2016 were bought on 1 July 2015, National Veterinary Care would be trading at 20.8x FY16's full-year earnings. I expect it will start paying a dividend in the next few months too.
Ramsay Health Care Limited (ASX: RHC)
Ramsay has big tailwinds thanks to Australia's ageing population and the government's desire to lessen the burden on the public hospitals.
Management have already shown they are capable of expanding Ramsay's global network, profits and dividends extremely well.
Ramsay could get a short term boost later this month when it reports. If both Ramsay and Healthscope Ltd (ASX: HSO) report growing patient numbers, it will show the market that both stocks are on the right track.
Ramsay is trading at 26.6x FY17's estimated earnings with a grossed up dividend yield of 2.43%.
Time to buy?
I think now is a good time to buy all three of these stocks, the share prices could grow significantly over the next few years. If I had to order my preference at the current prices it would be Ramsay, then National Veterinary Care and finally REA Group. If you want another great growth stock, but with a large dividend you should check out our latest recommendation.
