Passive income is a really appealing way of receiving investment returns. We don't need to do anything as the pleasing payments keep rolling in every six (or three) months. ASX shares in particular are a great way to potentially get a resilient 5% passive income return.
I think investors who want yield should pay closer attention to ASX dividend shares because savings options are starting to reduce their payout. For example, a number of financial institutions recently cut their term deposit rates.
One of the most appealing things about investing in income-paying businesses is that they can pay an appealing yield this year and deliver growth for the next year because they are regularly investing to grow the business to make more profit.
It can be tricky to find businesses that provide a mixture of good yield and predictable dividends. But, there are a couple I'll point to: global pathology ASX share Sonic Healthcare Ltd (ASX: SHL) and energy infrastructure business APA Group (ASX: APA).
Here are three things I really want to tell you about both businesses.
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Passive income yield and growth
I'm going to tell you about two ASX dividend shares that, between them, could pay an average dividend yield of 5% in FY24.
On Commsec, the projection is that Sonic Healthcare could pay an annual dividend per share of $1.07, which would translate into a grossed-up dividend yield of 4.8%. It has grown its annual dividend each year since 2013 and the board has a "progressive dividend policy".
APA is expected to pay a distribution per security of 56 cents in FY24, which would translate into an FY24 distribution yield of 6.7%. It has grown its distribution each year since 2004. That'll be 20 years of consecutive growth if it grows this year.
If an equal amount is invested in both, the average yield would be 5.75% if the forecasts become a reality.
Organic growth
For me, it's essential that an ASX share's core business is delivering decent growth. That helps protect against competition, it can offset long-term inflation and it can fund bigger passive income payouts to shareholders.
APA owns a large network of gas pipelines, transporting half of the country's gas usage. A large majority of its revenue is linked to inflation, so this inflationary period has led to pleasing revenue growth for the business.
Sonic Healthcare's core business is also seeing pleasing growth – in the first four months of FY24, it saw organic revenue growth of 7%. It can benefit from tailwinds like an ageing population and an increasing population.
Investing in growth
These two ASX dividend shares are putting a lot of money towards expanding and diversifying their earnings.
APA continues to expand its pipeline network to new places, which can enable stronger cash flow. It's also investing in renewable energy and electricity transmission. The business is also exploring the possibility of using hydrogen in its pipes.
Sonic Healthcare is looking to use technology developments to help its operations. It's looking at microbiome testing and also investing in developing AI. The business is expanding geographically through acquisitions, with a recent focus on Germany and Switzerland.
