It can be hard to find S&P/ASX All Ordinaries Index (ASX: XAO) stocks that can provide a high and growing dividend yield. But I think GQG Partners Inc (ASX: GQG) shares could be an appealing option for passive income.
For investors not familiar with this compelling company, it's a funds management business that provides actively managed portfolios for institutions, advisors, and individuals. It predominantly looks for high-quality shares with economic moats or competitive advantages.
This ASX dividend share already pays investors a pleasing level of cash flow each year, and it's projected to grow to an even larger figure next year.
Let's look at how big the payout could be in 2025.
ASX All Ords stock's dividend yield
GQG pays a dividend to investors every three months, so it's providing attractive and regular cash flow to shareholders.
Based on the current projection on Commsec, the ASX All Ords stock is expected to pay a dividend yield of 8.1% in FY25. Its financial year is the same timeframe as the calendar year.
There are not many ASX dividend shares that pay a yield of over 8% which are expected to see dividend growth in the next 12 months.
How is it achieving a high dividend yield?
There are two elements to a company's dividend yield. There is the dividend payout ratio – how much of its annual profit it's paying out as a dividend – and the price-earnings (P/E) ratio.
GQG is committed to a dividend payout ratio of 90% of its distributable earnings. I think that's generously high, but it leaves enough profit within the business to invest in more growth. Fund managers generally don't require much capital to grow the business.
Fund managers usually trade on a lower earnings multiple than other sectors like technology or industrials, which also helps ensure a fairly high dividend yield. The higher the P/E ratio, the lower the dividend yield. According to Commsec, the GQG share price is valued at just 11x FY25's estimated earnings. I think that's cheap for the earnings growth the business is achieving.
Earnings growth
I think earnings of the ASX All Ords stock can continue growing at more than 11% per annum over the next couple of years, largely due to its rising funds under management (FUM).
The business hardly charges performance fees, so management fees are key to the company's financial success. As FUM rises, its fees rise. At October 2024, it had US$159.4 billion of FUM, up from US$155.6 billion in June 2024 and US$103.9 billion in October 2023.
The FY24 half-year result for the six months to June 2024 saw average FUM rise 46.5% to US$139.5 billion, and the total dividends paid per share increase 46.3% to US 5.66 cents. If FUM keeps rising, I think the ASX All Ords stock's dividend could keep climbing at a similar pace over the longer term.
