Before Westpac Banking Corp (ASX: WBC) shares, I would consider Blackmores Limited (ASX: BKL) shares.
What's your ideal investment?
When I think of the best investment I could make, I think it would do two things for me:
- Go up in value
- Pay a regular income (preferably tax-effective)
Westpac, Australia's second-largest bank, did just that over the past two to three decades. The Westpac share price is up 200% since 1999, and in the past 10 years, its dividends have risen from $1.29 per share to $1.88 per share — a 46% increase.
However, looking ahead, I'm sceptical that it can continue to grow as it has in years gone by. Don't get me wrong, I think it will grow its dividends and profits, but not at the same pace it has over the past two decades. Unfortunately, the market appears to have priced Westpac shares for strong growth in the years ahead — leaving little room for buyers to snatch a bargain, in my opinion.
While I wouldn't call it a 'sell' at these levels — I think it is a hold — I would suggest evaluating your exposure to the banking sector and maintaining a well diverse share portfolio. For example, if 20% of your share portfolio is in bank shares, you might consider taking the dividends as cash and investing in other, faster-growing, shares.
1 dividend share to consider
One dividend share I would consider today is Blackmores Limited. It is a higher-risk proposition than Westpac, of course. However, over the next 10 years, I think it is easy to see Blackmores growing into a bigger and better company.
The vitamins and infant formula producer has already experienced rapid growth — its share price is up 300% in five years. However, the company continues to show strength in the local market and is tapping the enormous Asian markets for growth.
You can expect volatility — the random ups and downs in share prices — with an investment in Blackmores. However, in addition to its long-term growth potential, the $1.9 billion company pays a handy 3% fully franked dividend, which could be reinvested as part of the dividend reinvestment plan or taken as cash.
Foolish Takeaway
Banks like Westpac and Commonwealth Bank of Australia (ASX: CBA) have performed exceptionally well over the past three decades. However, it may be time to consider the risks associated with having a portfolio heavily concentrated in the banking sector and the opportunity cost of missing the next wave of growth businesses.
Blackmores is just one example of a mid-cap dividend-paying ASX share to consider.
