ASX shares can be a powerful way to generate passive income. In this article, I'll discuss four picks that offer great dividends.
I'm not just looking for the biggest dividend yield as very high yields are not always sustainable. Instead, I like to find businesses delivering good organic operational growth because that is what can unlock capital gains.
If I were investing $30,000, I'd be very happy to spread the money across the below four stocks.
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Healthco Healthcare and Wellness REIT (ASX: HCW)
As the name suggests, it's a real estate investment trust (REIT) that owns buildings in the healthcare and social space. Hospitals are one of the main categories of property within the portfolio.
It's indirectly benefiting from tailwinds like the ageing population and the growing Australian population.
The ASX share has an occupancy rate of 99%, with 75% of its leases linked to CPI – it's generating solid rental growth. The business also has a large development pipeline worth at least $1 billion, which can generate further rental profits. The weighted average lease expiry (WALE) is around 12 years, suggesting appealing long-term rent is locked in.
It's expected to pay a distribution of 8 cents per unit in FY24, which would be year-over-year growth of 5%. This would be a distribution yield of 5.6%.
Telstra Group Ltd (ASX: TLS)
Telstra is the leading telecommunications company in Australia. One of the most attractive elements of the business is that it continues to win new subscribers. Spreading more subscribers over the same network has the potential to increase profit margins. Not only that, but its average revenue per user (ARPU) is rising.
The business has a goal of increasing the annual passive income per share for shareholders over time.
It's projected to pay an annual dividend per share of 18 cents per share in FY24, which would be a grossed-up dividend yield of 6.7%. By FY26 it could be paying an annual dividend per share of 20 cents, which would be a grossed-up dividend yield of 7.4%.
Metcash Ltd (ASX: MTS)
Metcash is the ASX share that supplies a large number of food and liquor businesses including IGA, Cellarbrations, The Bottle-O, IGA Liquor, Porters Liquor, Thirsty Camel, Big Bargain Bottleshop and Duncans.
It also has a hardware division which includes the businesses Total Tools, Mitre 10, Home Timber & Hardware and other smaller names. It recently announced it's acquiring one of the largest frame and truss businesses.
I like the move by the business to acquire Superior Food, an industry leader servicing a broad range of customers across the food service sector. It has partnerships with mining sites, restaurants, cafes, canteens, caterers, schools, universities, healthcare and aged care facilities.
The ASX share is committed to a passive income dividend payout ratio of 70% of underlying net profit after tax (NPAT). It's projected to pay a grossed-up dividend yield of 7.3% in FY24.
Centuria Industrial REIT (ASX: CIP)
This is another REIT that has impressive metrics and a strong rental outlook. It has a portfolio occupancy rate of 97.2% and a portfolio WALE of 7.5 years.
One of the most impressive elements is that in the FY24 first-half result, it achieved positive re-leasing spreads of 51% across 17 transactions. This essentially means its rental income is 51% higher on the new rental contracts compared to the former contract.
This extraordinary rental income growth shows the huge demand for logistics properties and could unlock excellent rental profit growth in the coming years as all of the contracts come up for renewal.
The ASX share has identified a $1 billion future urban infill industrial development pipeline, "capitalising on sustained tenant demand", in the business' words.
It's expecting to pay a distribution of 16 cents per unit in FY24, which would be a distribution yield of 4.5%. I expect the distribution to grow significantly over the rest of the decade.
