In my view, the ASX dividend stock GQG Partners Inc. (ASX: GQG) is a top pick for passive income.
GQG is not as well known as some other dividend names like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Telstra Group Ltd (ASX: TLS) or National Australia Bank Ltd (ASX: NAB). It's a funds management business based in the US.
There are a few things that I look for when it comes to high-yield ASX dividend stocks.
First, I'd want to see a dividend yield that is appealing compared to other forms of passive income. Second, longer-term earnings growth is important. Passive income paid regularly would also be attractive.
I'll run through each of the three reasons below.
High dividend yield
GQG is committed to a high and generous dividend payout ratio of 90% of distributable earnings. I like this level of payout because it means that shareholders get most of the profit paid to them each year. However, the company still retains a bit of money for reinvesting, improving the balance sheet, and/or making acquisitions.
I don't think the high dividend payout ratio limits the company's growth – fund managers are usually capital-light businesses. They don't require a new factory or warehouse if they want to expand or grow into a new country, and they don't require a 20% bigger office to manage 20% more funds under management (FUM).
Fund managers usually trade on a fairly low price-earnings (P/E) ratio, which also helps GQG have a high dividend yield.
According to the forecast on Commsec, the business is projected to pay a dividend yield of 7.8% in FY25.
Earnings growth
Ideally, ASX dividend stocks should be able to provide inflation protection because they can grow their profit and, subsequently, the passive dividend income over time. Sustainable dividend growth cannot occur unless the profit is growing too.
GQG's main investment strategies have a history of outperforming their benchmarks. This is useful for organic FUM growth and attracting new client money.
In the first six months of 2024, GQG achieved 46.5% growth of average FUM to $139.5 billion, helped by net inflows of US$11.1 billion for the period. Pleasingly, the ASX dividend stock's FUM has risen to US$160.8 billion as at 31 August 2024, suggesting further solid earnings growth over the next 12 months if the FUM were to stabilise at that level.
HY24 saw distributable earnings increase by 53.7% and the total dividend per share rise by 46.3%.
Regular payer
To help with cash flow for investors focused on income, it can be attractive if the investment is paying quarterly rather than half-yearly or even annual dividends.
GQG pays a dividend to shareholders every three months, so investors receive appealing passive income payments throughout the year. The current payment months are March, June, September and December.
