The ASX dividend share Pacific Current Group Ltd (ASX: PAC) looks like a much more appealing passive income pick to me than Commonwealth Bank of Australia (ASX: CBA) shares, in my opinion.
Pacific Current is a company invested in a number of fund managers including GQG Partners Inc (ASX: GQG), Banner Oak, Victory Park, Astarte, Pennybacker, and ROC.
It has a different economic relationship with each fund manager, so the growth rate of funds under management (FUM) doesn't necessarily translate into the exact same growth rate for revenue or profit.
I'm going to look at three of the main reasons why I think Pacific Current is a better ASX dividend share than Commonwealth Bank.
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Projected dividend yield
For starters, it has a much larger potential dividend yield.
According to Commsec estimates, in FY24, Pacific Current could pay a grossed-up dividend yield of 9.3%.
This compares to the current projected grossed-up dividend yield of just under 6% for CBA. Certainly, Pacific Current could pay a lot more passive income to shareholders for FY24.
The difference could be even more pronounced by the time we get to FY25. In FY25, the estimated numbers on Commsec imply that CBA's annual dividend could grow by 1.1% to a grossed-up dividend yield of just over 6%.
Pacific Current's FY25 annual payout could rise by 7.6% to a grossed-up dividend yield of 10%. Not only is its short-term yield stronger, but it could also grow faster than CBA shares.
Better valuation for the ASX dividend share
There are many different ways to value the businesses, but I think Pacific Current is a much better value ASX dividend share.
Pacific Current shares have a significantly lower price/earnings (p/e) ratio than CBA shares. Projected numbers on Commsec imply the CBA share price is valued at 18x FY24's estimated earnings, while Pacific Current is valued at under 11x FY24's estimated earnings.
Not only is the ASX dividend share at a much lower earnings multiple, but it also has the balance sheet to back it up.
All of its stakes in the fund managers have a value, as well as its other assets such as cash. It had a net asset value (NAV) of $9.93 per share at the end of the FY23 first half. That means the latest Pacific Current share price of $7.58 (at the time of writing) is trading at a discount of more than 20% to that NAV.
More growth potential
When it comes to ASX bank shares, I don't think there's significant growth potential in the lending space. Certainly, there is a lot of competition between lenders which is lowering profit margins. Plus, Commonwealth Bank is so big that it's hard to keep growing at a meaningful pace.
The global funds management space is a large industry and Pacific Current only needs to be invested in a few promising managers to do well. Fund managers are very scalable businesses – they don't require much extra capital to manage another $100 million, so any growth is helpful.
I think the ASX dividend share can continue to deliver attractive growth of its earnings as it expands its own portfolio of fund managers, and the underlying fund managers deliver aggregate FUM growth themselves.
