It's not too hard to find substantial passive income on the ASX. Most investors just look for ASX dividend shares sporting large upfront dividend yields. You can buy shares of a big bank like Westpac Banking Corp (ASX: WBC) or ANZ Group Holdings Ltd (ASX: ANZ) today and immediately start with a dividend yield well north of 4.5%.
Other ASX blue chips like BHP Group Ltd (ASX: BHP), Telstra Group Ltd (ASX: TLS) and Woodside Energy Group Ltd (ASX: WDS) also have solid track records of paying big passive income upfront.
But buying ASX dividend shares that offer fast-growing passive income is a bit of a harder ask. Companies that pay out big dividends today tend to be large, mature businesses that already pay out most of their earnings as dividends. As such, these companies don't tend to have huge growth runways when it comes to future passive income.
So today, let's discuss two ASX dividend shares that offer both dividends and fast-growing passive income potential.
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2 ASX dividend shares with fast-growing passive income
Coles Group Ltd (ASX: COL)
First up is a relatively new ASX dividend share in Coles Group. Coles has only been listed on the ASX in its own right since 2018. But since then, this grocer has dutifully increased its annual dividends to shareholders every single year.
I think dividend shares like Coles, which are housed in the consumer staples sector, have great potential to consistently grow their dividends over time, thanks to the defensive nature of their earnings bases. Remember, this is a company that boosted its shareholders' income over 2020 and 2021 – years that many other stocks slashed their payouts for obvious reasons.
In 2019, Coles forked out an annual total of 35.5 cents per share. But last year, that annual total had grown to 66 cents per share. In 2024, this will extend to 68 cents, fully franked of course.
It's my view that Coles' track record in growing its passive income speaks for itself here. Right now, Coles shares are trading on a dividend yield of 3.72%.
Washington H. Soul Pattinson and Co Ltd (ASX: SOL)
Next up, we have another passive income stock in investment house Soul Patts. Soul Patts is not your typical ASX share. Instead of producing goods or services, it manages a portfolio of underlying assets on behalf of its shareholders.
This ASX share has proven it can do this task with aplomb, with a decades-long track record to back it up. Back in May, Soul Patts revealed that its shareholders enjoyed a total return (growth plus dividends) of 12% per annum over the 20 years to 30 April 2024. That smashes the returns of the broader market.
Speaking of dividends, this performance translates into an impeccable passive income track record. Soul Patts is the only ASX share on the stock market that has delivered an annual dividend increase every single year since 2000. As we discussed at the end of last month, these dividends have increased at a compounded annual growth rate of 9.6% per annum over this time. I rest my case.
Soul Patts shares are currently trading on a dividend yield of 2.7%.
