If you like ASX share dividends as much as the next guy, try Vocus Group Ltd (ASX: VOC) shares, Washington H. Soul Pattinson & Co. Ltd (ASX: SOL) shares and NIB Holdings Limited (ASX: NHF) shares on for size.
Cue the dividend music
Looking at the interest rates currently on offer from bank accounts and term deposits, it's hard to get excited. You'll get 2.5% per year if you are lucky.
By contrast, it's hard not to get excited about the long-term outlook of owning quality, dividend-paying, ASX shares.
Consider this situation: If you add $200 per month to a $1,000 investment for 20 years, your money grows to around $63,000 at 2.5% interest per year (before taxes).
However, if you assume a 7.5% return — which is below the S&P/ASX 300 (ASX: XKO) (INDEX: ^AXKO) 30-year average return according to Vanguard — the investment becomes $108,179 (before taxes). Same monthly deposit, same starting figure. Just more cashola.
Dividends: Not guaranteed, but consistent
Now, I know what you are thinking: Shares are risky.
They are, you are right. They are riskier than term deposits and savings accounts.
However, if you build a portfolio of shares in great businesses and take a long-term view, the market crashes will come and go just as quickly.
What's more, although dividends are not guaranteed like your term deposit may be, they are often very consistent. They may not be consistent in terms of the amount, but most quality companies pay at least something to shareholders.
3 ASX shares to match
Yesterday, conglomerate-style business Washington H. Soul Pattinson & Co. Ltd reported its half year results to the market, revealing impressive rates of growth and an increase to its dividend. However, it was this statement by the company that really got me thinking:
"If a shareholder had invested $1,000 40 years ago in 1977 and reinvested all dividends, the shareholding would have appreciated to over $507,000 as at 31 January 2017. This equates to a compound annual growth rate of 16.8% year on year for 40 years."
Soul Patts, or WHSP, is a diversified business that owns large chunks of shares in other businesses, like TPG Telecom Ltd (ASX: TPM) and Brickworks Limited (ASX: BKW), the owner of Austral bricks. Shares in WHSP pay a 3% dividend.
Two other companies worthy of a spot on watchlists are telecommunications company Vocus Group Ltd (ASX: VOC), the owner of Dodo, iPrimus, Commander, and more; and NIB Holdings Limited (ASX: NHF), the health insurer. Respectively, they have returned an average of 17.9% and 36.4% per year over the past five years. While a future return can never be guaranteed, they are tipped to offer dividends of 3.5% and 2.9% – both come with tax-effective franking credits.
Foolish Takeaway
Dividends are not guaranteed. But if you have an emergency fund set aside and do not expect to buy a house, go on a luxurious overseas holiday or have another major expense planned in the next four years, chances are, the sharemarket will be the best place to park your money.
And, remember, it's an open-house party, so everyone is invited.
