Some ASX growth investors dismiss the idea of dividends and dividend income entirely. After all, if you don’t need the income today, why would you buy a company weakening its balance sheet every 6 months by shovelling cash out the door.

But dividends have advantages of their own (not least franking credits) that can help any investor accumulate wealth faster. This choice isn’t always mutually exclusive. There are some ASX shares that offer investors both dividend income today, as well as the opportunity for significant future capital growth tomorrow.

Here are (in my opinion) two such shares.

Telstra Corporation Ltd (ASX: TLS)

Telstra is not the kind of company that has a reputation for growth. It’s Australia’s largest telco that makes a crust selling phones, data plans and fixed-line broadband internet. It does have a reputation for dividend income, however. On current prices, Telstra shares are offering investors a trailing dividend yield of 5.1%, or 7.20% grossed-up (based on Telstra’s annualised 16 cents per share dividend over the past 12 months).

That’s a fine yield to be sure, but I also think Telstra has significant growth potential in front of it. That’s because the company is heavily investing in the rollout of 5G technology. 5G is the next ‘big leap’ in mobile internet and promises many new applications like NBN-beating speeds and the Internet of Things.

If all goes well with 5G in the next few years, I see Telstra as a stock with both income and growth potential.

Magellan Global Trust (ASX: MGG)

This share isn’t one company, but a listed investment trust (LIT) consisting of an entire portfolio of companies. But not just any companies. Magellan Global Trust has a management team that selects companies from all over the globe that they think are the ‘world’s best’. Right now, these include Facebook, Alibaba, Alphabet (Google), Visa and Tencent, amongst others. All of these names are growth engines that have helped this LIT deliver a performance of 12% per annum since its inception in 2017.

But one of the great features of MGG is that its also geared for income as well. The trust aims to provide its investors with a 4% distribution yield every year, which you can either choose to receive in cash or reinvest at a discount. In this way, I think Magellan Global Trust is a great share to hold for both capital growth and dividend income.

More reading

• Why Macquarie, Telstra, United Malt, & Westpac are dropping lower
• ASX 200 Weekly Wrap: Gold miners help edge ASX ever higher
• How to earn $50,000 of passive income with ASX shares
• ASX shares can help millennials retire before their parents
• 2 ASX shares for a first-time investor

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Alphabet (A shares), Facebook, Telstra Limited, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Facebook, and Visa. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Alphabet (A shares) and Facebook. 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.

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‘Just buy the index’ is a common refrain you hear from investors these days. Index-tracking exchange-traded funds (ETFs) have become a popular pathway for investing in recent years. So much so that the most popular ETF in Australia – the Vanguard Australian Shares Index ETF (ASX: VAS) – now has over $4.8 billion in funds under management.

The ease, simplicity and passive nature of ETFs have driven this surge, together with the (quite frankly) dismal performance of ETFs’ actively managed counterparts.

So why bother trying to buy shares yourself when you can just ‘buy the market’?

Weighing up index ETFs

ETFs work by buying every share in an index – the good, the bad and the ugly. VAS, for example, holds the largest 300 companies in Australia, with the largest companies (like CSL Limited (ASX: CSL)) having far more weighting than the smallest.

The good news is that you can buy the market just through one single ASX share. ETFs typically have very low fees and expenses as well (VAS only charges a fee of 0.1% per annum for instance).

The bad news is that ETFs are designed to blindly follow an index – meaning the fund will be buying the strong shares along with the weak, the good companies along with the bad – with no discretion in between.

That means you are never going to outperform the ‘market’ because the ETF is the market. You are accepting an average return forevermore.

That might be just fine for those investors who don’t want to put any work into investing and have a very long-term horizon. History shows that even just investing in an ETF like VAS will give you far superior returns to just having your money in cash (even in a high-interest term deposit).

But if you want to use the stock market to generate market-beating returns, ETFs are not the best place to be.

Foolish takeaway

We Fools think anyone has the potential to beat the market (although it’s not easy). But it does require dedication, patience, and the right temperament.

For some people, active investing in this manner just isn’t the right fit, and so index-tracking ETFs might be the best option for those individuals. But if you want to learn how to beat the market, you will have to branch out beyond index ETFs and dive into the world of finding good quality businesses to buy into.

More reading

• Don’t delay: Start investing today in shares to become rich
• How to invest $5,000 in ASX 200 healthcare shares today
• ASX 200 Weekly Wrap: Gold miners help edge ASX ever higher
• Here’s how to create a $1 million ASX portfolio by investing $1,000 a month
• Top brokers name 3 ASX shares to buy next week

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. 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.

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Is Whitefield Limited (ASX: WHF) the best ASX dividend share? It just grew its dividend in its FY20 result.

What is Whitefield?

Whitefield is a listed investment company (LIC). It’s one of the oldest on the ASX, it has been around since 1923.

Why Whitefield might be one of the best ASX dividend shares

It can point to a record of dividends that have been maintained or grown every year over the past 25 years.

In today’s FY20 result the LIC declared a final dividend of 10.25 cents per share, compared to 10 cents per share last year. That is in addition to the 10.25 cents per share it paid as the interim dividend, compared to the prior year’s 9.75 cents per share.

That brings the FY20 grossed-up dividend yield to 6.6% at today’s share price. I think that’s a solid yield in today’s environment. 

FY20 result

The ASX dividend share announced an operating profit after tax of $17.66 million. This equated to earnings per share (EPS) of 17.8 cents, a decrease of 3.7%.

Whitefield said that the financial year to March saw two periods. The first 10 months of the year saw moderately widespread dividend and distribution growth from a majority of shares in the portfolio. There was some weakness in the financial and banking sectors. However, the emergence of COVID-19 and the containment measures in February and March meant companies began to cut or defer dividends to preserve cash. I think we’re likely to see cuts for the next 12 months. 

Some of the businesses that delivered distribution growth was Brambles Limited (ASX: BXB), ASX Ltd (ASX: ASX) and Medibank Private Limited (ASX: MPL).

Whitefield’s portfolio return for the full year amounted to a negative 8.88%. This outperformed the S&P/ASX 200 Industrials Accumulation Index by 3.15%. I think that’s a solid performance. 

Whitefield’s outlook

The ASX dividend share said that the outlook is dominated by COVID-19. I don’t think that’s surprising. Remember its profit is determined by investment returns. The near-term is full of uncertainty and the financial impacts are “profound”. Whitefield said there is likely to be a very material downturn in both 2020 and 2021.

Whitefield expects to maintain its dividend in the December 2020 result, but said investors should be aware it may have to review its dividend payments if conditions continue to deteriorate.

Seeing as Whitefield is currently trading at around its net asset value, I’m not in a rush to say it’s a buy. But I think Whitefield is one of the best ASX dividend share ideas for conservative income.

More reading

• 2 ASX shares I would buy for growth and income
• Should ASX investors just buy ETF index funds for better returns?
• Where to invest $500 in ASX shares right now
• ASX 200 climbs 1% in positive start to the week
• Why this overlooked ASX 200 stock just got upgraded by 3 leading brokers to “buy”

Motley Fool contributor Tristan Harrison 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.

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