It's a fun game to imagine what you'd do if you received a huge sum of money, it could be from an inheritance or winning the lottery. Rather than spending it all, I like the idea of investing it in ASX shares for passive income so that money can potentially last forever.
I'd want to choose investments that have a track record of stability and can deliver long-term growth for investors.
I already own a number of these, so I'd want to allocate a lot more to them. I'd invest a bit more in the first pick, say $40,000, because of the underlying diversification of that investment. I would allocate the same amount to each of the other options – say $15,000 per pick.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Pattinson is my favourite ASX share for long-term passive income. It has a diversified portfolio of investments in ASX shares, unlisted businesses and other assets (such as credit and property).
It aims for investments that have a positive long-term outlook with a reliable/uncorrelated cash flow profile. Some of the areas where it's invested include telecommunications, resources, building products, financial services, agriculture, swimming schools and so on.
The business has an impressive dividend record – it has increased its annual payout every year since 2000. That's partly thanks to its investment choices, and also the fact that it retains some of its profit each year to re-invest.
It doesn't have the biggest dividend yield, with the trailing grossed-up dividend yield being 3.8%. In five years I think the payout could be quite a bit more if the dividend keeps growing.
Brickworks Limited (ASX: BKW)
Brickworks is Australia's largest brickmaker, and it also manufactures other building products, such as roofing. But, the building products division isn't why I'm invested.
Firstly, it owns a large amount of Soul Pattinson shares – this provides Brickworks with a growing dividend and helps with long-term capital growth.
Brickworks also owns half of a growing property trust which is a joint venture with Goodman Group (ASX: GMG). The property trust is steadily building more industrial warehouses on the land, which is creating rental profit and development profits on the completion of each project.
The company hasn't cut its passive income for almost 50 years, so it has a long-term track record of stability. But, the grossed-up dividend yield isn't very large either.
Metcash Ltd (ASX: MTS)
Metcash is the distributor to a number of independent retailers including IGA, IGA Liquor, Bottle-O, Cellarbrations, Porters Liquor and Thirsty Camel. It's also heavily involved in the hardware sector, owning the brands Mtire 10, Homer Timber and Hardware, and Total Tools.
I'd be very happy to invest in this one because of two factors.
Firstly, I like the long-term earnings outlook for the business. Its food and liquor earnings could hold up well – I think people are going to keep eating and drinking, regardless of what the economy is doing. Plus, population growth is a useful tailwind for demand across all three of its segments.
Secondly, its financial statistics seem very reasonable. Based on the FY24 projections on Commsec, it's valued at 12 times forward earnings with a potential grossed-up passive income yield of 8.4%.
Rural Funds Group (ASX: RFF) and Centuria Industrial REIT (ASX: CIP)
Both of these businesses are real estate investment trusts (REITs) that own high-quality commercial properties.
Rural Funds owns farmland and Centuria Industrial REIT focuses on warehouses in city locations.
The share prices of both of these businesses are lower compared to their early 2022 levels, but this has increased the distribution yield.
While inflation has led to pain for these ASX shares, inflation is also boosting the rental income, which is helping offset some of the negativity and helping support the passive income payments.
I think demand for farmland and industrial properties will grow, partly thanks to the growing Australian (and global) population.
In FY24, Rural Funds is expecting to pay a distribution yield of 5.5% and Centuria Industrial REIT is projected to pay a distribution yield of 4.9%.
