Best ASX dividend share to buy now: Rio Tinto vs. Macquarie Group

Is a miner or financials business the better income choice?

| More on:
A woman holds up hands to compare two things with question marks above her hands.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Both of these ASX dividend shares have been impressive dividend payers over the last five years
  • Macquarie keeps growing its dividend, thanks to compounding earnings growth
  • Rio Tinto is expected to pay another big dividend in FY23, but then the dividend could sink

There are various blue-chip ASX dividend shares for investors to think about, such as Commonwealth of Bank (ASX: CBA). However, I think there are better candidates to consider. Here are two other options, but would Rio Tinto Limited (ASX: RIO) or Macquarie Group Ltd (ASX: MQG) shares be a better choice?

Rio Tinto is one of the largest ASX mining shares. It's one of the biggest miners in the world. It mines various minerals including iron, copper, and more.

Meantime, Macquarie is one of the largest ASX financial shares. It's an investment bank that runs a bank in Australia, has a global investment bank, an asset management division, and a commodities and global markets (CGM) segment.

Which ASX dividend share pays the biggest yield?

Rio Tinto is making solid earnings at the moment thanks to a pleasing iron ore price of around US$120 per tonne.

The Commsec forecast for earnings per share (EPS) from Rio Tinto is predicted to be $10.95 in FY23. The profit generated would allow Rio Tinto to pay an annual dividend per share of $7.44, which would represent a grossed-up dividend yield of 8.8%.

Macquarie is projected to pay an annual dividend per share of $6.78 in FY23 according to Commsec, after generating $12.91 of EPS. This would be a grossed-up dividend yield of 4.3%. The investment bank is still generating very strong profits despite the economic volatility over the last year or so.

In the short-term, Rio Tinto's yield is projected to be the higher of these two ASX dividend shares.

By FY25, Macquarie could grow its annual dividend per share to $7.20 and it might generate $13.20 of EPS. Macquarie is predicted to grow in the medium term. The FY25 grossed-up dividend yield could be 4.6%.

But, for Rio Tinto, the forecast is that EPS will decline to $9.79 and the dividend per share could drop to $6.35. This would be a grossed-up dividend yield of 6.5%.

In the longer term, the yields of the businesses could get much closer.

Which passive income option is better for growth?

I think Macquarie has proven that it's better at delivering consistent growth over time.

For Rio Tinto, the share price, profit, and dividend are heavily influenced by the resource price. Another element to remember is that Rio Tinto's mines aren't going to last forever. It does need to invest a lot to start new projects.

Macquarie has been re-investing in its business for the long term, which is useful considering it's expanding globally in a variety of financial sectors.

Over the past five years, the Macquarie share price has risen 70% and the Rio Tinto share price has gone up 50%. I think capital growth is an important part of being a good ASX dividend share.

While Macquarie may have a lower starting dividend yield, I think it's more likely to deliver stronger total returns and eventually, the ongoing growth of Macquarie's dividend could deliver a stronger yield. Macquarie would be the one I'd buy, though Rio Tinto could be appealing next time resource prices sink.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

A mature-aged couple high-five each other as they celebrate a financial win and early retirement
Dividend Investing

5 top ASX dividend shares to buy right now

Analysts think income investors should be loading up on these shares.

Read more »

Two adults and a child look happy as they walk through airport with child sitting on suitcase.
Dividend Investing

Will Qantas shares pay a dividend in 2024?

Will the dividends return this year? Let's find out.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Dividend Investing

2 market-leading ASX dividend stocks to buy in April

Analysts have put buy ratings on these market-leaders.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Man holding Australian dollar notes, symbolising dividends.
ETFs

Want the latest dividend from the Vanguard Australia Shares ETF (VAS)? Here's what you have to do

If you want to bag the latest VAS dividend, here's what you need to do.

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Dividend Investing

Investing for passive income? Keep any eye out for that boosted Telstra dividend today!

If you own Telstra shares, keep an eye out for that juicy dividend payout today.

Read more »

A happy construction worker or miner holds a fistfull of Australian money, indicating a dividends windfall
Dividend Investing

Invest $12,000 in Woodside stock and get $5,700 in passive income

Reliable dividend shares are everywhere on the ASX. Here's how you could use that to your advantage.

Read more »

Australian dollar notes in businessman pocket suit, symbolising ex dividend day.
Dividend Investing

3 ASX 300 dividend shares to buy in April

These shares have been named as buys by brokers and tipped to offer very attractive yields.

Read more »