Dividend shares could become increasingly popular among income-seeking investors in coming years. Low-interest rates may see shares offer the most attractive return profile among mainstream income-producing assets.

Therefore, buying a selection of cheap shares now which offer dividends could be a sound move. Although the recent market crash may or may not be over yet, the prospect of a long-term market rally may mean that shares offer strong capital returns in the coming years, helping you to retire early.

Low-interest rates

The uncertain outlook for the world economy could mean interest rates experience a prolonged period at low levels. This may help to support the economy while it faces an unprecedented crisis. But it also leaves income-seeking investors with a lack of choice in generating a return from their capital.

For example, mainstream income-producing assets such as cash and bonds may become relatively unpopular. They may fail to offer an inflation-beating return over the next few years. This could increase the demand for dividends with many companies now presenting relatively high yields following the market crash.

Certainly, there is scope for dividends to be cut across many sectors where sales and profitability are under pressure. But a number of companies and industries have reported solid financial performances of late. As such, their shares may experience increasing demand from investors. This is especially true if they are able to increase dividends at an above-inflation pace.

This could lead to a rise in share price to complement attractive income returns over the long run. It could also boost your portfolio returns.

Share market recovery

The share market’s long-term prospects appear to be relatively bright despite a sustained recovery seeming unlikely at the present time. This is due to the potential risk of a second coronavirus wave later in the year and geopolitical challenges concerning the US and China.

However, share market recoveries seemed unlikely during the previous crisis. And while they can sometimes take years to materialise, long-term investors building a retirement nest egg are likely to have sufficient time to benefit from them. As such, equities appear to offer the most obvious means of generating an attractive total return over the long run.

Increasing popularity of dividend shares

Dividend shares could be relatively popular during a market recovery. This is not only for their income prospects but because a growing dividend suggests financial strength and confidence among a company’s management regarding growth potential. Investors may view a company with the financial strength to maintain its growing dividend in a more positive light, relative to its peers.

This may increase demand for its shares and lead to a higher share price, which boosts your chances of retiring early.

More reading

• 3 of the best ETFs to give ASX investors international exposure
• Can you get rich by investing $5,000 a year into ASX shares?
• Where I’d invest $2,500 in ASX shares today
• Top brokers name 3 ASX 200 shares to sell next week
• Top brokers name 3 ASX 200 shares to buy next week

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Why cheap dividend shares could help you retire early in this market rally appeared first on Motley Fool Australia.

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How much do you think you would have now if you had invested $5,000 into the share market each year since 1990?

That’s a total of $150,000 invested over a 30-year period. Maybe it would be worth $250,000 now? Or perhaps even half a million?

Well, you might be surprised to learn that if you earned the market return of 9.5% per annum, you would have generated even more wealth. Today, these investments would be worth approximately $825,000.

I believe this demonstrates how rewarding it can be to invest consistently over a long period.

With that in mind, I have picked out three top ASX shares which I believe would be great options for your first $5,000 investment:

Bubs Australia Ltd (ASX: BUB)

I think Bubs could be a good option for a $5,000 investment. It is an infant formula and baby food company which has been growing at a rapid rate. This has been driven by its expanding distribution footprint in Australia and increasing demand in the Asia market. The good news is that its distribution footprint has just expanded further and demand in China is accelerating. I believe this bodes well for its future earnings growth.

Freedom Foods Group Ltd (ASX: FNP)

Another ASX share to consider investing $5,000 into is Freedom Foods. It is a diversified food company with a focus on healthy eating. Its shares have fallen heavily this year after the pandemic hit a number of its sales channels hard. I believe these headwinds are only temporary and investors ought to take advantage of its share price weakness to buy shares. Especially given its very positive long term earnings growth outlook thanks to increasing demand for UHT dairy products, plant beverages, and cereals and snacks.

ResMed Inc. (ASX: RMD)

A final option for a $5,000 investment is ResMed. I believe the medical device company can continue growing its earnings at a solid rate for some time to come. This is thanks to its exposure to a sleep treatment market growing quickly due to the proliferation of sleep apnoea. I think ResMed will be one of the biggest winners in the market because of its high quality masks and software solutions.

More reading

• What ASX shares should you invest in during a bull market?
• 3 ASX shares to buy and hold for the 2030s
• 3 quality ASX shares to buy and hold for decades
• Have $10,000? This is where I’d invest it into ASX shares
• Here’s why long term investing can outperform shorter holding periods

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 BUBS AUST FPO. The Motley Fool Australia has recommended BUBS AUST FPO, Freedom Foods Group Limited, and ResMed Inc. 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 Can you get rich by investing $5,000 a year into ASX shares? appeared first on Motley Fool Australia.

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