Income is a very important part of returns for a lot of people. Dividends are generally less volatile than share price movements and can represent some, if not all, of a person's income in retirement.
If I were to invest in dividend shares I'd want to go for businesses that have reliable dividend histories and have every chance of growing at a good rate over the coming years.
But, the potential dividend ideas also have to pay a good yield, or else I may as well keep cash in the bank.
Here are two ideas:
Clime Capital Limited (ASX: CAM)
This is a small listed investment company (LIC) that invests in a broad range of shares.
It can invest in large ASX shares like Amcor Limited (ASX: AMC), mid-cap ASX shares such as Bingo Industries Ltd (ASX: BIN), small cap ASX shares like Collins Foods Ltd (ASX: CKF) and international shares like Facebook & Baidu.
The net returns have improved considerably since including international shares into the portfolio mix and it currently offers a grossed-up dividend yield of 7.8%. It has increased its dividend each year over the past five years. It's also trading at a decent discount to its underlying value.
WAM Research Limited (ASX: WAX)
WAM Research is one of my favourite Wilson Asset Management listed investment companies (LICs). Although it was recently trading at a very high premium to its underlying value, that has fallen again to a more manageable level after going ex-dividend.
WAM Research invests in undervalued small-cap and mid-cap shares the investment team think have a catalyst which can re-rate the business. It has been very successful with this strategy – over the past five years its portfolio has returned 16.6% per annum before fees and expenses, soundly outperforming its benchmark.
Some of its current top holdings include Bapcor Ltd (ASX: BAP) and Specialty Fashion Group Ltd (ASX: SFH).
The LIC has used this outperformance to pay a steadily-increasing dividend which has gone up every year since the GFC. It currently has a grossed-up dividend yield of 8.8%. However, it is still trading at a substantial premium to the underlying assets.
Foolish takeaway
Both of these LICs have increased their income steadily over the past five years. Barring another GFC I expect both of them could remain as solid income choices. Having an average yield between them of 8.3% is far better than a term deposit.
