It’s no secret that technology shares are the current rockstars of the ASX. I take a closer look at two that pay a reliable dividend whilst still investing for future growth.
Profit vs Potential
ASX tech shares such as Afterpay Touch Group Ltd (ASX: APT) and Xero Limited (ASX: XRO) offer huge upside potential with revenue growing extremely fast and a long runway for future growth.
However, I believe they lack one key ingredient that must be present for a company to be truly considered a wonderful business. A company can possess all the potential in the world but until it is consistently generating a profit there is a heavy dose of hope and speculation thrown into the investment thesis.
These fast growing tech darlings may well go on to be huge ASX winners but they are yet to earn their stripes. Unlike the two ASX tech shares below they have not yet shown an ability to generate a growing stream of income or dividends for their investors.
Seek Limited (ASX: SEK)
SEEK is an online employment business that matches job seekers and employers together. It is also used by hiring agencies to build a portfolio of candidates. SEEK operates in a host of countries including Australia, New Zealand and China.
Seek recorded another record revenue figure in FY19 with total revenue jumping 18% year on year. This translated into an underlying net profit after tax (NPAT) of $229 million.
Despite the business continuing to invest heavily for future growth they were able to once again increase their dividend in FY19, paying out a full year dividend of $0.46 per share. This represents a historical yield of 2.2% at the current price which is quite impressive for a company that is still very much in a growth phase.
The company expects to deliver double-digit revenue growth in FY20 as it continues to aggressively pursue its long term growth strategy.
Carsales.Com Ltd (ASX: CAR)
Carsales was founded in 1997 and is the largest automotive, motorcycle and marine classifieds business in Australia. It is headquartered in Melbourne and employs more than 1,200 people around the world. The company has operations in the Asia Pacific region and has stakes in businesses in Brazil, South Korea, Malaysia, Indonesia and Thailand.
Carsales increased revenue by 11% in FY19 and recorded a healthy NPAT of $85.3 million. This was dragged down by a one-off impairment charge against its 50.1% stake in the underperforming Stratton Finance. Adjusting for the impairment profit came in at $131.3 million, a mild 2.8% increase on the previous period.
Carsales has been paying dividends to shareholders for nearly a decade now and in FY19 paid out $0.455. This constitutes a historical yield of 3% which is again very healthy given the potential for long term growth, especially from its investments in online classified businesses overseas.
Management have said they expect growth to remain “solid” in FY20 which will likely ensure the Carsales dividend continues on its upward trajectory.
2020: 3 stocks to buy for the long run
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At the time of publishing, Luke owns shares in Seek Limited.