When most people think about how to profit from investing in the share market, they likely focus on capital appreciation. In other words, the best way to make money from share investing is to find the company with the most explosive growth potential and hope its share price blows up in the next few years, netting a massive gain.
However, share investing doesn't have to be all about capital gains. Stock dividends can also provide a great source of passive income.
What's so great about dividends?
There are many benefits to dividend investing. While stock-picking investing strategies like growth investing or value investing are more hands-on and higher-risk, dividend investing is much more likely to suit 'set and forget' investors. There's no need to constantly check your share portfolio or closely follow the latest market news – just find a dependable dividend stock, kick back, and collect your dividend payments every six months.
And who doesn't like a little extra income in their pockets? It could supplement the income you receive from your day job, allowing you to work less and spend more time doing the things you love. Or, you could use it to save for a holiday, or even stick it in your emergency fund so you have the peace of mind that you can handle any unexpected expenses.
Plus, there are the tax benefits. Many ASX dividend shares come with franking credits which reduce the amount you have to pay at tax time.
One of the best ASX dividend stocks
Mining services company GR Engineering Services Ltd (ASX: GNG) pays some of the juiciest dividends on the ASX.
In the last financial year, GR Engineering paid out a total of 19 cents per share to its shareholders as dividends (consistent with the prior year). Based on its current share price of $2.11, that's a dividend yield of 9% – grossed up for franking credits, you're looking at a yield of almost 13%!
This means that if you picked up 5,000 shares in GR Engineering (at a total cost of about $10,550), you could essentially be earning $113 in passive income a month – or $1,357 a year. That's the return airfare for your next international holiday right there!
What does GR Engineering do?
Headquartered in Perth, GR Engineering is a global engineering and consulting firm that services the mining and mineral processing industries. It helps mining companies design and build mineral processing plants and other related facilities.
While most of its major projects have been for mining companies in Western Australia, GR Engineering has also worked with clients in diverse locations such as the Solomon Islands, Türkiye, and Saudi Arabia.
Most recently, it was awarded a $25.7 million contract to design and construct the Woodlawn copper-zinc project in New South Wales, which is owned by ASX mining company Develop Global Ltd (ASX: DVP).
What about the risks?
With a total market capitalisation of just over $350 million, GR Engineering is a higher-risk investment than more established blue-chip dividend stocks like Transurban Group (ASX: TCL). This means its share price is probably going to be more volatile. But it does pay almost twice the dividend yield!
GR Engineering also relies on a healthy commodities market for its business. However, it isn't overly exposed to the price of any one resource – in the way that, say, Northern Star Resources Ltd (ASX: NST) is a pure play on the price of gold.
For example, if the gold price slumps, there might be less demand for new gold processing plants. However, if the price of copper goes up at the same time, there will be more demand for copper plants. Because it works with clients across the mining sector, GR Engineering's diversified customer base helps lower its business risk, ensuring it can earn consistent revenues over time.
However, the biggest near-term risk for the entire mining industry is the impending Trump presidency. If the incoming US president is true to his word and slaps substantial tariffs on all foreign imports, that could dampen local production industry-wide.
The worst outcome for Australian miners would be if the situation escalates into a major trade war with China and causes a significant slowdown in the Chinese economy.
As the largest buyer of Australian iron ore, gold, and copper, China is integral to the success of the local mining industry – so a drop-off in demand from China could signal tough times ahead for the whole sector, including companies like GR Engineering.
