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Best Shares to Buy for Dividends

Richard Hemming


The best shares to buy for dividends often fly under the radar and can give investors income through dividends plus share price growth potential.  

Why are ASX Small Caps the best shares to buy for dividends?

ASX Small Caps that pay dividends are the best shares to buy as they indicate that the company is a quality investment and it represents an important price signal for the stock market. When there is increased uncertainty and the stock market comes under pressure, ASX Small Caps that pay dividends are the best to buy as they will help investors portfolio’s ability to weather the storm.

The best shares to buy that pay dividends provide clear evidence that the board and management consider the company to be stable over the long-term. Under the Radar Report's dividend portfolios have delivered strong cash returns as well as capital appreciation. Join for free to view these portfolios now. 

Which shares pay the best dividends?

To get you started buying the best dividends shares, one example of a ASX Small Cap share that pays dividends is the shade cloth manufacturer Gale Pacific (GAP). This dividend paying ASX Small Cap is a solid but cyclical business and sells to major markets in North America and Asia. This share has a strong balance sheet and pays consistent dividends. You wouldn’t bet the house on this dividend paying share, but you could buy the ASX Small Caps for a bit of income that could help pay some bills.

If you’re looking for $200 a year in income you buy 10,000 shares for $3000 you’re getting 1 cent a share in dividends every six months. Under the Radar Report researches over 100 ASX Small Caps and 50% of these shares pay dividends. Click here to access the best shares to buy that pay dividends.

Gale_Pacific_Best_Dividend_Paying_Stock

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Why is a ASX Small Cap dividend portfolio the best?

Although their ardour is waning a little, most Australian investors remain in love with shares that pay dividends. However, it is earnings growth that is the key to making money. ASX Small Caps do not have the luxury of paying out all their earnings in dividends like some of the big companies do. This works out to the investors’ advantage, however. It is always important to remember that it is the movement of share prices, not the dividends paid, which dictates the returns investors make, over any period of time.

From 2000 to 2012, the return from Telstra's (TLS) dividends was 73 per cent, but its price return was -47 per cent. It delivered a measly annualised return of less than 2%. Companies only grow when profits are reinvested, and when a company’s sole objective is to maintain a high dividend yield, it doesn’t augur well for long-term value.

Compare Telstra’s return with the gold producer, Newcrest Mining (NCM). The miner delivered an average annual dividend yield of 0.78 per cent between 2000 and 2012 with the annual dividend increasing from 5 cents in 2000 to 35 cents in 2012. An investor that bought this share paying dividend in 2000 would have achieved a total return of 406 per cent in 2012, comprising a 363 per cent price return and a 43 per cent dividend return.

What about the risks in buying shares that pay dividends?

There are risks in buying ASX Small Caps that pay dividend, but the dividend shares we recommend buying have delivered an annual cash yield of 7% before you include franking credits, rather than a yield of 2% from a Government bond. Plus, you get capital growth potential from these Small Cap shares that pay dividends, unlike a bond.

What we’re talking about is investing in Small Cap shares that pay dividends for the long-term. Because that’s what investing for income is about. Under the Radar Report helps you forget about the daily movement of share prices and selects the best shares to buy for dividends. Click here for free access to this week’s best dividend paying shares to buy.

About the Author

Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (AFSL: 409518). The author does not own shares in any of the stocks mentioned.

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