Many investors will appreciate that the way to generating life-changing wealth in the share market is to identify businesses that are able to deliver double-digit profit and dividend growth over the long term.
The rule of 72 will show you roughly how long it will take an investment to double if you divide the rate of annual return by 72. For example a 12% rate of return on an investment means it will take around six years to double, while a 36% rate of return means it will take just two years to double.
Let's take a look at a couple of businesses then that are growing their dividends at strong double-digit rates that might have the potential to double them again over the years ahead.
Altium Limited (ASX: ALU) this week reported an annual dividend up 15% over the prior year with a 22% and 18% increase in net profit and revenues respectively. The company delivered US$110.8 million in revenues over the year and boasts of an ambition to nearly double revenues to US$200 million by 2020.
The group's software services related to the Internet of Things sector are under increasing demand globally and it has a super strong balance sheet. Its management team also appears experienced and if the company can grow dividends at an annualised rate of 15% its dividend could double within five years. The stock changes hands for $9.52 today.
Corporate Travel Management Ltd (ASX: CTD) is the travel management company that has delivered strong dividend and profit growth over the past five years. Over FY 2017 it managed to increase its dividend a whopping 25% to 30 cents per share, although it is still paying out less than 50% of its underlying earnings per share in dividends.
Dividend growth above 25% is unlikely to be sustainable, but management is forecasting FY 18 underlying EBITDA (operating income) growth of 22% to 27.5%.
If the company can deliver on the mid-point of this guidance it would be impressive, although it's also worth noting that Corporate Travel has a handy habit of upgrading guidance throughout the financial year.
Its founder Jamie Pherous still owns around 22% of the company and does not appear to be selling any shares. In fact on August 25 a separate director of the company bought an additional 10,000 shares in a trade listed as "on market".
If Corporate Travel is able to deliver annualised earnings growth around 15% over the next five years its dividends could easily double again in that period.
