When it comes to dividend investing, a diversified portfolio may not be the answer as most payouts come from a handful of ASX shares.
In fact, co-portfolio manager of First Sentier's Equity Income Fund, Rudi Minbatiwala, estimates that around 66% of all dividends paid out come from just seven ASX shares, reported the Australian Financial Review.
Income investors chasing yield might be surprised to note that these seven don't include infrastructure, healthcare, or telecommunications – defensive sectors that typically are bought for their reliable distributions.
ASX shares with the biggest dividend checks
Three of the seven are the ASX iron ore majors. These are BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), and Fortescue Metals Group Limited (ASX: FMG).
Our readers may have also picked up on the fact that BHP has been crowned the top dividend payer in the world recently.
Their coffers are flushed with cash thanks to the high iron ore prices. While capital investment and costs are rising, these ASX mining shares are still making more money than they need. This is good news for shareholders looking for fat dividend payouts.
The other four high dividend payers are the big banks. These are the Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australian Bank Ltd (ASX: NAB), and Australia and New Zealand Banking Group Ltd (ASX: ANZ).
Have dividends reached a temporary peak?
The big four ASX banks have traditionally been a favourite among income investors. This is because they pay a more consistent dividend than the miners, which are largely at the mercy of volatile commodity prices.
But there's a real risk that total dividends from these seven heavyweights may have peaked – at least for now. Minbatiwala pointed to the pullback in the iron ore price from record levels in 2021.
He thinks ASX banks can deliver some improvement, but their lower payout ratios mean dividends will take time to return to previous highs.
The right approach to ASX dividend investing
"That said, we think income investors can benefit from changing their mindset about equity income investing," said Minbatiwala.
"Attractive income from equities is delivered through the interaction of yield and growth over time, not yield alone."
This is why those looking for the biggest dividend bang for their buck may not want to blindly purchase these seven.
Among the big miners, Minbatiwala favours BHP and Rio Tinto. As for the ASX banks, he likes National Australia Bank and Commonwealth Bank of Australia.
