An ASX dividend giant I'd buy over ANZ shares for 2024

ANZ would not be my first pick for passive income.

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ANZ Group Holdings Ltd (ASX: ANZ) is known for its large dividend payouts. But, there's one ASX dividend giant that I would choose instead – GQG Partners Inc (ASX: GQG).

ANZ is one of the largest ASX bank shares, while GQG is one of the largest fund managers on the ASX.

Income-seekers love getting a good dividend yield, so let's compare the two businesses.

Dividend yield

ANZ faces a challenging time in the banking world, with strong competition for deposits and borrowers. This is hurting the net interest margin (NIM), which tells investors how much profit the bank is making on its lending compared to the cost of funding (like term deposits).

There is also potential for the arrears to increase because of the high interest rate that borrowers are facing.

Due to these impacts, some analysts think the ANZ bank will cut its dividend in FY24. The estimate on Commsec suggests an annual dividend per share of $1.62. That's a cash yield of 5.8% and a grossed-up dividend yield of 8.3%, which includes the franking credits.

In contrast, fund manager GQG has seen rapid growth of its funds under management (FUM) over the last several months, which is a big driver of revenue and profit. GQG has committed to a dividend payout ratio of 90% of its distributable earnings.

According to Commsec, GQG is expected to grow its annual dividend per share to 19.5 cents. At the current GQG share price, the 2024 dividend cash yield could be 8.1%, though there are no franking credits because it's a US business. Franking credits are generated by Australian companies.

Earnings trajectory of the ASX dividend giants

A large upfront dividend yield is one thing, but for me, it's much more important to know which way earnings and shareholder returns may go.

There is so much competition in the lending space that banks are struggling to maintain their hefty profitability margins. In the second half of FY23, ANZ saw its group NIM decline to 1.65%, down from 1.75% in the first half of FY23.

The competitors don't seem to be going away, with names like Macquarie Group Ltd (ASX: MQG) growing market share.

In addition, ANZ's organic loan book growth may be sluggish because of the current relatively weak credit environment – debt is much more expensive these days.

Profit growth is key to helping sustainably push the share price and dividend. According to the estimates on Commsec, it may take until FY26 for ANZ's profit to return to FY23 levels, while the annual dividend per share could remain lower.

GQG has shown to have a good investment team over the long term, with its main strategies outperforming their respective benchmarks. This is helping grow the FUM, which is driving underlying earnings higher. In addition to the investment-driven FUM growth, the business is seeing strong FUM inflows.

In the first three months of 2024, the ASX dividend giant reported receiving US$4.6 billion of net inflows, which can help fund more profit and dividend growth. The FUM reached US$143.4 billion at 31 March 2024. According to the Commsec projection, by FY26, GQG could be paying a dividend yield of 9.7%.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. 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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