Dividend-growth investing is a powerful investing strategy, and has made many patient investors very rich. It involves looking for good, sustainable yields for both today and tomorrow. We ASX investors love our banks like Westpac Banking Corp (ASX: WBC), but Westpac is not what I would call a dividend-growth stock, despite its 6.7% dividend. This is because I don't expect Westpac to be able to grow its dividend in a substantial way over the next ten years (maybe even maintain it). Looking for current AND future growth is the key here.
Here is how I would build a dividend-growth portfolio using $100,000.
iShares Core S&P/ASX 200 ETF (ASX: IOZ) – $20,000
The first chunk of our portfolio goes to this market-wide exchange trade fund (ETF). With IOZ, you are getting exposure to the top 200 companies in Australia. The Australian share market is full of big, dividend-paying companies and has averaged a return of 12.88% over the past 3 years (including dividends). IOZ is currently yielding 4.86% and comes with partial franking credits attached. This ETF comes cheap with a fee of 0.09% and forms a solid backbone for our portfolio.
Ramsay Health Care Limited (ASX: RHC) – $20,000
Ramsay is a private hospital owner/operator and is one of the best healthcare stocks on the ASX (in my opinion). Ramsay has an excellent history of using capital efficiently and effectively to grow at a solid rate over many decades. The company has also increased its dividend every year since 2000 and looks set to continue this trend in 2019 – making it a worthy inclusion in our dividend growth portfolio.
InvoCare Limited (ASX: IVC) – $20,000
InvoCare is Australia's largest provider of funeral services and has an excellent track record of growth in an otherwise fragmented market. Although a (literally) morbid industry, InvoCare provides quality services for those that need them and excels in adapting to the trends and individual requirements of its customers. InvoCare has also provided a rising dividend over the past two decades and I expect they will have the capacity to continue this trend.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) – $20,000
'Soul Patts' is one of Australia's oldest companies and is also dividend royalty on the ASX, having paid out a dividend for most of its listed life and increasing said dividend every year since 2000. Soul Patts primarily invests in other quality companies on the ASX such as TPG Telecom Ltd (ASX: TPM) and has a great track record of picking winners. The company is currently yielding a dividend of 3.59% grossed-up.
BHP Group Ltd (ASX: BHP) and South32 Ltd (ASX: S32) – $10,000 each
I'm splitting the last $20,000 between BHP and South32 as both are diversified and high-quality resource companies covering a wide range of commodities. BHP specialises in iron ore, oil, and copper while South32 mines manganese, aluminium, diamonds, nickel, and lead. Tight-ship resource companies like these are able to truck cash out the door as dividends when commodity prices are high, but for the same reason, the payouts can also be volatile. BHP and South32 are currently yielding 5.56% and 6.47%, respectively (grossed-up).
Foolish takeaway
I believe with this combination of stocks, you are getting a balanced dividend-growth portfolio that will pay out a rising income stream for the foreseeable future. All of these stocks are quality companies and have demonstrated an incredible ability to consistently reward shareholders.
