How to earn a 100% return every year from ASX dividends

With a long term view, let's look at how you can own ASX shares to yield a 100% dividend return on your investment.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The ASX is full of many great dividend-paying shares. This is somewhat thanks to Australia's dividend imputation system, where there is a tax incentive for investors to receive dividends. However, not all dividend paying shares are created equal.

Where to look

Searching for companies with high dividend yields can lead to shares that are more prone to cut their dividends, or companies which have slower growth rates in their dividend payments. I think the best option is to find ASX companies which may have a lower initial yield, but are growing their payments. And have a bright future to continue to do so. Alternatively looking for companies which will one day pay a dividend can be rewarding also.

Let me explain a little more.

An example

If you had bought shares of Macquarie Group Ltd (ASX: MQG) back in 1996 they would have set you back just $6.59 a piece.

Since then, not only has its share price increased massively but so have Macquarie's dividends. In fact, since listing on the ASX in 1996, Macquarie has grown its dividends by a constant annual growth rate (CAGR) of 13%, paying shareholders a total of $6.10 in partially franked dividends during 2019. This means that if you had held onto Macquarie shares since 1996, your dividend yield on investment today would be 92.5% or nearly 110% grossed up!

Of course banks and financial institutions look likely to cut dividends. However, the calculations above include Macquarie's large dividend cuts during the GFC also, from which it has recovered.

Companies to look for

If we look for ASX companies that currently pay around a 5% dividend yield and can achieve a CAGR of 10%, doing a little maths put us into a time frame of approximately 31 years. What this means is that if you were to purchase an ASX share today which yielded 5%, held it for 31 years (great for younger people planning for retirement) and it managed to grow its dividend by 10% each year, then you would receive you initial investment every year just in dividends. Not to mention your capital growth return over this period.

But there are so many companies out there and finding one or two that can fit the mould is difficult. The most important factor to consider is the company's ability to continue to grow its dividend year after year. Without this, you will likely never reach your initial investment.

You should consider a company's addressable market size, its ability to move into other markets, build new products, acquire businesses, etc. All these can help a company grow over time and continue increasing its dividend payments.

One large S&P/ASX 200 Index (ASX: XJO) company which appears a promising candidate is Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). Soul Patts is an investment conglomerate which pays a conservable dividend yield through return from its investments. At the time of writing, it has a grossed-up yield of 4.75%, close to our 5% assumption, and it has grown its dividend payments at a CAGR of close to 8% over the last 16 years. Also pretty close to our 10% goal. This is a growth rate I believe it has the ability to continue providing. 

Assuming this growth rate continues, an investment in Soul Patts today would take just over 44 years to receive a dividend yield on investment of 100%.

Foolish takeaway

Finding a company which has the ability to meet these requirements may be difficult. However I'm willing to bet there will be quite a number of companies which will achieve this 100% yield on investment when we look back in 30 years time. The trick will be holding onto them.

Motley Fool contributor Michael Tonon owns shares of Macquarie Group Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Washington H. Soul Pattinson and Company Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

An analyst wearing a dark blue shirt and glasses sits at his computer with his chin resting on his hands as he looks at the CBA share price movement today
Opinions

Expert's verdict on 3 ASX 200 shares (2 have doubled in value and the other has lost 29%)

Two of these stocks were the best performers of their sectors in FY25. Should you buy, hold, or sell?

Read more »

A male ASX 200 broker wearing a blue shirt and black tie holds one hand to his chin with the other arm crossed across his body as he watches stock prices on a digital screen while deep in thought
Share Market News

5 things to watch on the ASX 200 on Wednesday

Here's what to expect on the Australian share market today.

Read more »

The silhouettes of ten people holding hands with their arms raised against the sky, as the sun rises or sets in the background.
Share Gainers

Here are the top 10 ASX 200 shares today

The ASX managed to bank a small rise this Tuesday.

Read more »

Sport trainer talking to little girl who is climbing wooden ladder in gym.
Share Gainers

Why Vault Minerals, Droneshield, Westgold Resources shares are climbing higher today

These shares are gaining on Tuesday, but why?

Read more »

A hipster-looking man with bushy beard and multiple arm tattoos sits on the floor against a sofa reading a tablet with his hand on his chin as though he is deep in thought.
Share Market News

ASX 200 slides on unexpected RBA interest rate call

The ASX 200 is tumbling on the RBA’s latest interest rate announcement.

Read more »

A young woman smiles as she rides a zip line high above the trees.
Financial Shares

5 best ASX 200 financial shares of FY25 (CBA didn't make the cut!)

These stocks were well and truly 'in the black' for share price growth last financial year.

Read more »

A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.
Share Fallers

Why Beetaloo, Botanix, Cobram Estate, and Origin Energy shares are falling today

These shares are having a poor session on Tuesday. But why?

Read more »

Two parents and two children happily eat pizza in their kitchen.
Broker Notes

Morgans reveals 4 ASX All Ords shares to buy now — and 2 may surprise you

The top broker has revealed a buy rating on four ASX All Ords shares from different market sectors.

Read more »