Passive income is the top focus for ASX shares investors of all ages in 2023, according to an ASX survey.
The Australian Investor Study 2023, published by ASX Ltd (ASX: ASX), canvases the investment attitudes and opinions of four investor demographics.
They are next gens aged 18 to 24 years, wealth accumulators aged 25 to 49, pre-retirees aged 50 to 64, and retirees aged 65-plus.
The study found that a sustainable passive income stream was the No. 1 goal among all of them.
That's a good thing given many experts say dividends will form the bulk of returns in this economic environment of normalised interest rates and high inflation.
Let's review the survey's findings.
Younger ASX shares investors value passive income the most
In response to the question, 'Looking forward, what will be your main goal when selecting your investments over the next 12 months?', investor respondents all ranked passive income first.
Perhaps surprisingly, the largest cohort nominating a sustainable income stream first was next gens at 36%.
This is interesting given next gens have the most time available to grow their wealth, so experts commonly advise younger investors to go for growth shares over income shares.
The next biggest cohort focussed on passive income in 2023 was the second-youngest investor group, the accumulators, at 34%. Then pre-retirees at 25% and retirees at 17%.
Again, this may be surprising given retirees often rely on both their superannuation investments as well as their direct investments in ASX shares to fund their lifestyles.
The study involved an online survey of a nationally representative sample of 5,519 Australian adults.
The survey included current investors and non-investors.
Experts say it's all about dividends now
Several experts reckon dividends will take on greater importance over the coming years.
Top broker Morgan Stanley says share markets over the next several years are likely to be volatile with lower capital growth.
Morgan Stanley says:
The next several years are likely to be marked by lower equity returns and higher volatility, which could lead dividends to account for a greater portion of total stock market return.
From 2013 through 2022, about 17% of the S&P 500 Index's total return came from dividends. But over a longer horizon, starting from the 1930s, dividends accounted for 37%.
The next several years will likely look more like the longer-term picture.
Veteran Wall Street fundie Rupal Bhansali is in agreement, saying:
Now your total return in stockmarkets is going to come much more from dividends, I favour companies that don't have a lot of debt, indebted companies should trade at a discount to net cash companies, but they're not, so my portfolio is much more biased towards owning net cash companies.
Michael O'Neill of Investors Mutual is expecting lower capital growth from ASX shares not just in 2023 but over the next 10 years.
O'Neill explains:
Dividends are always important, right now they're critical. … in times like these … it's best to minimise your risks and invest your money where you have the best chance of healthy returns.
For us that means buying and holding shares in quality industrial companies, at attractive valuations, that pay strong dividend yields.
Dividends deliver 51% of ASX 300 returns
O'Neill says data from 1998 to 2021 inclusive shows dividends comprised 51% of overall returns among S&P/ASX 300 (ASX: XKO) shares.
While outperforming capital growth only slightly, dividends provided the advantage of stable, reliable passive income.
And it seems investors are thinking about stability and reliability, too.
The ASX study also shows that the top two concerns of investors today are returns (42%) and risk (35%).
Which ASX shares should you buy for passive income?
O'Neill likes "quality industrial companies, at attractive valuations, that pay strong dividend yields".
Back in January, O'Neill was recommending Suncorp Group Ltd (ASX: SUN) to income investors.
That was a good pick.
Suncorp shares have turned out to be among the biggest dividend-boosting ASX shares this earnings season so far.
Suncorp reported a net profit after tax (NPAT) of $1.15 billion in FY23, up from $681 million in FY22, and rewarded shareholders by raising its final dividend by 59% to 27 cents per share.
You can check out some of the other big dividend-boosting ASX shares this season in our report here.
Looking ahead, my Fool colleague James has revealed the latest broker recommendations for investors seeking strong passive income in FY24.
They are as follows:
Broker recommendations for strong passive income
ANZ Group Holdings Ltd (ASX: ANZ)
Goldman Sachs has a buy rating on ANZ shares with a 12-month price target of $27.55. The broker forecasts a fully franked annual dividend of $1.62 per share in FY24. Based on yesterday's closing ANZ share price of $24.30, this will mean a dividend yield of 6.7%.
Aurizon Holdings Ltd (ASX: AZJ)
Macquarie has an outperform rating on Aurizon shares with a $4.04 price target. The broker expects partially franked annual dividends of 18.4 cents per share in FY24 and 25.1 cents per share in FY25. Based on yesterday's closing Aurizon share price of $3.68, this will mean yields of 4.6% and 6.2%, respectively.
HomeCo Daily Needs REIT (ASX: HDN)
Morgans has an add rating on this real estate investment trust (REIT) with a $1.39 price target. The broker tips an unfranked annual dividend of 8.3 cents in FY24. Based on yesterday's closing price of $1.16, this will mean a passive income yield of 7.2%.
Rio Tinto Ltd (ASX: RIO)
Goldman Sachs has a buy rating and a $126.90 price target on Rio Tinto shares. The broker tips a fully franked annual dividend of US$4.05 or AU$6.31 in FY24. Based on yesterday's closing Rio Tinto share price of $105.32, this will mean a yield of 6%.
Transurban Group (ASX: TCL)
Citi has a buy rating on Transurban and a $15.90 price target on its shares. The broker forecasts a partially franked annual dividend of 63 cents in FY24. Based on yesterday's closing Transurban share price of $13.02, this will mean a passive income yield of 4.8%.
