The share market has been proving forever that it's the best place to generate long-term capital growth whilst spitting out pleasing dividends along the way.
However, it's important that you don't simply go for the shares with the biggest yield just because they have the biggest yield, the underlying business must be growing too. Shares are not just simply high-yielding bank accounts.
The bigger the business you invest in, the less growth that it can theoretically create in the future because it has already grown so much. It's much easier for a $1 billion company to double in value compared to a $100 billion company. However, as long as the earnings per share keeps growing then that's all that counts for a reliable dividend.
The bonus effect of a low-growth company is that it will have a lower price/earnings ratio and a higher dividend yield. Shares such as the following could provide the long-term growth and pleasing dividends that you're after:
National Australia Bank Ltd (ASX: NAB)
NAB is one of Australia's largest banks and has been a big beneficiary of Australia's growing economy and real estate market.
The thing that I really like about NAB is it leans towards business lending, particularly with some of the best and fastest growing businesses in Australia such as REA Group Limited (ASX: REA), Xero FPO NZX (ASX: XRO) and Afterpay Touch Group Limited (ASX: APT).
NAB just unveiled its full-year results to 30 September 2017, which saw the cash earnings per share grow by 1.87% and the dividend maintained at $1.98 per share. Growth is growth, even if it's low.
NAB is currently trading at 13x FY18's estimated earnings with a grossed-up dividend yield of 8.92%.
Medibank Private Limited (ASX: MPL)
Medibank is the biggest private health insurer in Australia with its Medibank and AHM brands. The private health insurance industry is a very profitable sector, much to the displeasure of the younger policyholders.
The overall industry is finding it hard to generate growth, but Medibank is still managing to churn out a little growth in this transitional stage. In FY17 Medibank grew earnings per share by 7.6% and the dividend by 9.1%.
The key will be what the government and management can do to keep growing private health insurance policyholders for the sake of the whole private system.
Medibank is currently trading at 20x FY18's estimated earnings with a grossed-up dividend yield of 5.48%.
Foolish takeaway
I think both Medibank and NAB have decent futures with long-term growth a likely outcome, even if there are some problems in the near-term. Both should be able to provide shareholders with big and quite reliable income over the coming years.
