The stock market can be a great place to find ASX dividend shares that could be excellent ideas for long-term passive income.
The ASX has plenty of blue chips that pay dividends, such as Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP). However, I'm not sure how much growth they will be able to achieve due to their very large size.
If I were given $5,000 to invest in businesses for investment income, I know three of the ones that I'd likely choose.
Rural Funds Group (ASX: RFF)
Rural Funds is a real estate investment trust (REIT) that owns a diversified farm portfolio across almonds, macadamias, cattle, vineyards, sugar, and cotton.
The business has a goal of increasing its distribution by (at least) 4% each year for shareholders. I think that's solid income growth for investors.
It owns a large number of water entitlements for tenants to use, which diversifies the asset base and protects tenants in drier weather.
Higher interest rates could have negative effects on the business. However, the Rural Funds share price has dropped by around 30% over the last year, which offsets the potential downsides of the much higher interest rates.
I think farmland will be an important asset for a long time to come and can help fund growing passive income. At the current Rural Funds share price, it has an FY23 distribution yield of 6%.
Wesfarmers Ltd (ASX: WES)
Wesfarmers is one of the largest retailers in the country, with a number of recognisable names in its stable of brands including Bunnings, Kmart, Target, Officeworks, Catch, and Priceline.
The business has the intention to grow its passive dividend income for shareholders over time. I think Wesfarmers can continue to grow earnings as it expands its businesses with bolt-on acquisitions. For example, it acquired Beaumont Tiles to boost its Bunnings business.
I'm particularly impressed by the growth of scale and earnings of Wesfarmers' chemicals, energy and fertiliser business called WesCEF. This segment is currently working on the Mt Holland lithium project, which would diversify earnings further.
According to Commsec, Wesfarmers could pay a grossed-up dividend yield of 5.25% in FY23.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Pattinson is one of the oldest companies on the ASX, listed for around 120 years.
I think this business is one of the most effective ASX dividend shares for passive income because of its diversified investment portfolio. It's spread across sectors including telecommunications, resources, financial services, agriculture, property, structured debt, and so on.
This business has grown its annual ordinary dividend every year since 2000 – the longest dividend growth streak on the ASX.
It pays out some of its investment cash flow each year as dividends. With the rest, it pays for its expenses and re-invests into more opportunities.
Excluding special dividends, Soul Pattinson has a trailing grossed-up dividend yield of 3.6%.
