Where I'd instantly invest $10,000 in ASX shares for passive income

I think these stocks are appealing for dividends.

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ASX shares that can provide investors with attractive passive income are appealing. I'm going to talk about three ideas that I'd buy with $10,000.

Savings accounts can now offer a much better rate of return, but they don't offer organic growth of the dividend payments or offer capital growth. It's growth over time that can help offset inflation, which is why I prefer ASX dividend shares over term deposits.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

This company likes to be called Soul Patts – it's an investment house that owns a variety of listed or unlisted assets. Some of its biggest equity investments include New Hope Corporation Ltd (ASX: NHC), Brickworks Limited (ASX: BKW), TPG Telecom Ltd (ASX: TPG) and Tuas Ltd (ASX: TUA). Some of its unlisted assets include swimming schools, agriculture and credit.

The ASX share has grown its annual ordinary dividend per share every year since 2000, which is a great record of passive income stability, but isn't guaranteed to continue forever.  

It's invested in a portfolio of assets that generate appealing, fairly defensive cash flow, which is helping the business pay that dividend consistently. Each year it re-invests excess cash flow (after paying expenses) into more opportunities.

Using the last two declared dividends, it has a grossed-up dividend yield of 3.8%.

Rural Funds Group (ASX: RFF)

This is a real estate investment trust (REIT) that owns a portfolio of farmland across different food types including almonds, macadamias, cattle, vineyards and cropping.

Commercial property can provide a useful mix of good distribution yield and hopefully long-term capital growth.

Farmland can provide investors with good passive income thanks to solid rental profits. Rural Funds is benefiting from ongoing rental income growth, with some farms having fixed annual increases and some linked to inflation, plus market reviews.

It's investing a lot in its farms, including changing some farms to macadamias, to improve its rental potential.

Its objective is to grow its distribution payout by 4% each year, though it hasn't achieved that recently amid its investing and higher interest rates.

Rural Funds is expecting to pay a distribution that equates to a yield of 5.6% for FY24. It's currently trading at a large discount to its stated net asset value (NAV) – I think it could be undervalued with potential interest rate cuts on the horizon.

Metcash Ltd (ASX: MTS)

Metcash is a large wholesaler and hardware business.

It supplies a number of large food and liquor businesses including IGA, Foodland, Cellarbrations, The Bottle-O, IGA Liquor, Porters Liquor, Thirsty Camel, Big Bargain Bottleshop and Duncans.

Metcash also has a number of hardware businesses including Mitre, Home Timber & Hardware and Total Tools. It also supports independent operators under the small format convenience banners Thrifty-Link Hardware and True Value Hardware, as well as a number of unbannered independent operators.

It also recently announced it's buying a foodservice distribution business called Superior Food. Metcash is also buying Bianco Construction Supplies (which it operates in South Australia and Northern Territory) and Alpine Truss (a large frame and truss operator).

The company aims to pay a dividend payout ratio of 70% of underlying net profit after tax (NPAT). It's expected to pay a grossed-up passive income yield of 7.3% in FY24, according to Commsec.

Motley Fool contributor Tristan Harrison has positions in Brickworks, Metcash, Rural Funds Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks, Rural Funds Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Metcash. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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