When it comes to dividends, many investors will look for shares which offer above-average yields.

While this is completely fine if you’re in need of an immediate source of income (especially in this low interest rate environment), it may not be the best way to invest in dividend shares.

If you have time on your side, then I believe you should be looking at shares that pay dividends and have the potential to grow strongly over the next decade and beyond.

To demonstrate why, I’m going to compare a couple of shares.

Comparing dividend shares.

Let’s start with Commonwealth Bank of Australia (ASX: CBA). I think Australia’s largest bank is a great option right now for investors that are looking for immediate income.

I estimate that its shares offer a forward fully franked yield of approximately 5.2%. However, if you’re not in need of income right now, it may not be the share to buy.

This is because if we were to jump ahead by 10 years, I don’t believe the yield on offer will be vastly superior to what it is today.

Next year I suspect the bank will cut its dividend down to approximately $3.70 per share. If it were to then grow this dividend by an average of 5% per annum for the following 10 years, in 2031 Commonwealth Bank would be paying a $6.03 per share dividend.

This equates to a yield on cost (the yield on the price you paid for the shares) of ~9%. While this is a generous yield, I think we can do better.

How can we do better?

One share that I think could be a future dividend star is ecommerce company Kogan.com Ltd (ASX: KGN).

Next year I expect Kogan to pay a 30 cents per share dividend. This equates to a fully franked 2.3%. While this isn’t anywhere near as good as Commonwealth Bank’s yield, I believe it could overtake it in time.

Given Kogan’s extremely positive outlook thanks to its increasingly popular website, acquisition plans, and the seismic shift to online shopping, I believe it is well-placed to grow both its earnings and dividends at a strong rate over the next decade.

My bull case is for Kogan to grow its earnings and dividends by an average of 20% per annum between 2021 and 2031.

If this proves accurate, then Kogan’s dividend would have grown to 185.7 cents by the end of FY 2031. At that point, if you bought shares today, you would have a yield on cost of approximately 14.1%.

But why stop there? If we then assume that it can continue growing its dividend by 7.5% per annum for the following 10 years, by FY 2041 its dividend would have grown to approximately 383 cents per share. This represents a yield on cost of 29%.

This means that $172,000 invested in Kogan’s shares today, could be generating dividends of $50,000 in 2041.

Foolish Takeaway.

I believe this demonstrates why some of the best dividend shares could actually be the ones with the lowest yields.

This could make it well worth considering a long term investment in Kogan and also tech shares such as Altium Limited (ASX: ALU) and Appen Ltd (ASX: APX).

All three look exceptionally well positioned to deliver long term growth and could increase their dividends materially over the next two decades if all goes to plan.

More reading

• 3 ASX dividend kings to buy and hold forever
• How I would build a balanced portfolio worth $100,000 with 10 ASX shares
• 12 top ASX dividend shares to buy in June 2020
• ASX 200 falls 1.9%, big 4 ASX banks retreat
• ASX shares I’d buy if this decline is a second COVID-19 crash

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Altium. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. The Motley Fool Australia owns shares of Appen Ltd. 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.

The post How to earn $50,000 in dividends each year with ASX shares appeared first on Motley Fool Australia.

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The Australian dollar certainly has been in fine form over the last few weeks. And if the economics team at Westpac Banking Corp (ASX: WBC) are to be believed, there could be more gains ahead for the local currency.

Which could be good news for companies like ARB Corporation Limited (ASX: ARB), Nick Scali Limited (ASX: NCK), and Reject Shop Ltd (ASX: TRS). This is because these companies pay for some of their goods in U.S. dollars, so a stronger local currency gives them more bang for their buck.

Why does Westpac think the Australian dollar can go higher?

Westpac’s chief economist, Bill Evans, notes that the Australian dollar has been on fire recently.

This strong gain has been driven largely by the solid performance of the iron ore price, which is up 25% from a level the bank previously felt was vulnerable to the downside.

However, given the supply disruption in Brazil and increasing demand in China, Westpac has changed its tune and appears confident that iron ore prices can stay higher for longer.

Mr Evans said: “We recognise that these positive influences on the iron ore price are unlikely to fade in the foreseeable future. Global opinion is highly sceptical about Brazil’s ability and commitment to bring the virus under control. China seems determined to make up for the “lost” first quarter, particularly in construction, over the course of the remainder of 2020 – and cram twelve months’ activity into nine.”

In light of this, the bank has lifted its year-end target for the Australian dollar by 4 U.S. cents to 72 U.S. cents.

What about in 2021?

Looking ahead, the chief economist expects a global growth recovery to boost demand for Australia’s key exports and support the Australian dollar.

“We are expecting global growth to lift from minus 3% (some forecasters such as OECD are now forecasting much deeper contractions of up to 6% in 2020) in 2020 to positive 5% in 2021, including a stunning 10% growth momentum in China,” Evans explained.

The bank expects this to take the Australian dollar up to 76 U.S. cents by the end of 2021.

Though, Mr Evans notes that there are downside risks to its forecasts, particular if the RBA were to take rates into negative territory.

The chief economist explained: “Downside outcomes for inflation and growth, exacerbated by an over-valued AUD, may well see the Bank reassessing its caution towards reducing the cash rate below zero.”

I think the Westpac economics team makes some great points and these forecasts could well prove accurate. This could make it a good time to look at shares that will benefit… and maybe start planning your next overseas holiday.

More reading

• ASX 200 falls 1.9%, big 4 ASX banks retreat
• Westpac share price lower on AUSTRAC update
• ASX 200 down 2.2%: Westpac tumbles, TPG reveals special dividend plans
• Why Jumbo, Santos, Westpac, & Zip Co shares are crashing lower
• ASX 200: improved consumer sentiment to near pre COVID-19 levels

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has recommended ARB 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.

The post Westpac tips the Australian dollar to continue rising appeared first on Motley Fool Australia.

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If you’re looking to make some new additions to your portfolio, then I think the three ASX shares named below would be fantastic options.

I believe they are among the best shares available to investors on the Australian share market and could generate strong returns for investors over the next decade.

Here’s why I would give them five stars:

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Although its performance over the last couple of years has been a bit shaky, I would still give Domino’s Pizza five stars. This is because I believe the pizza chain operator’s plans have positioned it to deliver strong earnings growth over the next decade. Over the next five years the company is aiming to grow its same store sales by 3% to 6% per annum. It is also aiming to deliver annual organic new store additions of 7% to 9% per annum over the same period. If successful, the combination of the two would result in stellar earnings growth if its margins are maintained.

Pushpay Holdings Group Ltd (ASX: PPH)

Another share that I would give five stars is Pushpay. It is a donor management platform provider for the faith sector. Over the last few years Pushpay has grown its market share in the United States at a rapid rate. This has led to the company reporting very strong revenue growth over the period. For example, in FY 2020 Pushpay reported a 33% increase in revenue to US$127.5 million. And thanks to its operating leverage, the company’s earnings grew at an even quicker rate. The good news is that more of the same is expected in FY 2021, with management forecasting its operating earnings to double. But it won’t be stopping there. Its longer term target is to win a 50% share of the medium to large church market. This represents a US$1 billion revenue opportunity.

SEEK Limited (ASX: SEK)

A final share I would give five stars is SEEK. I think the founder-led job listings giant is a high quality business with the potential to grow materially in the future. This is thanks largely to its international operations and particularly its rapidly growing Zhaopin business in China. I expect this business to play a key role in the company achieving its goal of growing its revenue to $5 billion later this decade. This compares to the revenue of $1,537.3 million it posted in FY 2019.

More reading

• Got $20,000? These are the ASX shares I’d buy during COVID-19
• Have $1,000? You should pick one of these 8 ASX shares
• 3 of the best ASX 200 blue chip shares to buy today
• Where to invest $500 into ASX shares right now
• 2 ASX shares I’d buy in a heartbeat

James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited, PUSHPAY FPO NZX, and SEEK 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.

The post 3 five-star ASX shares I would buy today appeared first on Motley Fool Australia.

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