Income is a very important part of returns for a lot of people. Dividends from ASX shares 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.
Listed investment companies (LIC) can be very useful, the structure allows them to smooth out dividend payments for steady growth and their portfolios usually provide good diversification.
Here are three ideas:
Clime Capital Limited (ASX: CAM)
Clime Capital is a small LIC that invests in a wide range of shares. It has holdings of ASX large caps like Amcor Limited (ASX: AMC), ASX mid-caps like Webjet Limited (ASX: WEB), small caps like Hansen Technologies Limited (ASX: HSN) and international shares such as Facebook and Baidu.
I like this diversification strategy as it means the investment team can invest wherever they see value. It has been one of the better LIC performers over the past year.
Clime has increased its dividend each year since 2012 and currently offers a grossed-up dividend yield of 8.1%.
Naos Emerging Opportunities Company Ltd (ASX: NCC)
This LIC is also a small one, which is very useful because it only invests in the smallest shares on the ASX with market capitalisations under $250 million.
Since inception in 2013 it has delivered an average return of 16.2% before fees but after expenses. This is a very solid return for an ASX-focused LIC.
Small caps could create the best returns because they are under-researched and have the biggest growth potential due to their smaller size.
I like the Naos way of investing – having a portfolio of high-conviction ideas for the long-term, usually only holding around 10 positions. This can lead to low returns in one particular year, but it works well over the long-term if the picks are good – as shown by its performance since inception.
This LIC has increased its dividend each year since 2013 and it currently offers a grossed-up dividend yield of 8.6%.
WAM Research Limited (ASX: WAX)
WAM Research is one of the longer-running LICs on the ASX and it has also been one of the best performers. Over the past five years its portfolio has returned an average of 16.5% before fees and expenses.
It has managed to achieve this performance by focusing on small caps and medium caps where the investment team see a catalyst to boost the valuation, otherwise it will sit in cash.
It has increased its dividend each year since the GFC and currently offers a grossed-up dividend yield of 9.1%.
Foolish takeaway
I like all three of these dividend shares and believe that they will deliver more total dividends than most other 'dividend' shares over the next five to ten years.
All of them are trading quite attractively compared to recent history, so it's hard to pick a winner – WAM Research has the biggest yield but it's still trading at a sizeable premium.
