If I were investing in ASX 200 (ASX: XJO) shares for capital growth and dependable dividends, I know two that’d be high on my list.
There are some businesses that are known for growth, like Xero Limited (ASX: XRO) and some that have a reputation for dividends, like Commonwealth Bank of Australia (ASX: CBA).
But there are not many that usually provide a good combination of both.
I think these 2 ASX 200 shares could be good candidates:
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
WHSP has been providing a combination of capital growth and dividends for decades.
In-fact, the investment house has increased its dividend every year since 2000. It’s the best record on the ASX.
But it’s how WHSP operates that makes it such a good wealth builder.
It takes long-term investment positions in quality, usually growing and typically defensive businesses.
Some of the current positions include TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), resources, agriculture, financial services, listed investment companies (LICs) and so on.
The ever-growing portfolio provides more diversification and a different form of growth.
Each year the ASX 200 share receives the investment income from its portfolio, pays out some of that cashflow as dividends and re-invests the rest.
That means that not only are the existing underlying investments growing their value and dividends to WHSP over time, but it’s accelerating that with further investments.
Including the franking credits, WHSP currently offers a dividend yield of 2.5% based on the annual FY21 dividend.
Wesfarmers Ltd (ASX: WES)
Wesfarmers is another ASX 200 share that can trace its roots back to over 100 years ago.
The company has various businesses including Bunnings, Kmart, Officeworks, Catch, Target, WesCEF and Wesfarmers Industrial and Safety. It also has other ones like a 50% stake of Flybuys, and positions in BWP Trust (ASX: BWP) and Coles Group Ltd (ASX: COL).
It’s a diverse group of operating businesses. Unlike WHSP, Wesfarmers is operating its key investments.
The company has a knack for choosing the right businesses to invest in. For example, two of its latest investments have been Catch and lithium, before the huge boom of the commodity and e-commerce that we are currently seeing. The lithium mine Mt Holland could be a great cashflow generator once it’s up and running.
Most of its operating businesses are steadily growing by themselves.
Bunnings in-particular is doing fantastically well. Existing warehouses are performing strongly. It’s slowly expanding the number of warehouses as well. Plus, Bunnings is diversifying into different building product sectors with Adelaide Tools and Beaumont Tiles.
I believe Wesfarmers is a good contender for long-term capital growth because of its ability to shift its business portfolio over time to forward-facing profit makers, like lithium.
The ASX 200 share also has an attractive dividend payout ratio, whilst keeping some profit to re-invest into growing the business.
Wesfarmers currently has a 4.6% FY21 dividend yield, when including the franking credits.
