A great trait about businesses that are growing their profit quickly is that they grow their dividend quickly too, if they maintain the same dividend payout ratio (or even increase it).
An investment that starts off with a smaller dividend yield can quickly grow to be paying pleasing dividend income after a few years.
Here are two businesses that I think are good growth and dividend options:
Bapcor Ltd (ASX: BAP)
Bapcor is the leading auto parts business of Australia and New Zealand. It's been growing impressively over the past few years thanks to both organic growth and strategic acquisitions.
In FY17 it grew continuing operations revenue by 47.8%, pro-forma earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 52.4% and pro-forma earnings per share grew by 36.4%.
This strong result meant that management could grow the dividend by 18.2% during FY17. This dividend growth was on top of the 26.4% growth in FY16.
Bapcor has made it clear that it has plans to keep expanding into the future with the growth of electric vehicles and even automated vehicles. All of those cars will still need maintaining and need parts replacing.
Bapcor is currently trading at 25x FY17's estimated earnings with a grossed-up dividend yield of 3.15%.
Class Ltd (ASX: CL1)
Class is a software provider for self-managed superannuation fund (SMSF) administrators. It offers accountants the ability to do the administration work so efficiently that it can actually be quite profitable.
Automation and cloud functionality adds a lot of value for accountants and that's why thousands of SMSFs are switching to the software.
However, the growth rate has slowed down considerably compared to the previous year, which is why the share price has fallen from $3.50 to $2.43. This has had the pleasing effect of growing the grossed-up dividend yield to 2.94%.
Class could still grow its dividend at a quick pace, with margins increasing. In FY17 Class grew the dividend by 34% and I wouldn't be surprised to see more strong double-digit growth in FY18.
Class is trading at 36x FY17's earnings.
Foolish takeaway
I think both shares are attractive at these levels and should be on course for a good FY18. At the current prices I think Class is actually good value now after its large fall.
