Certain ASX shares could be contenders to pay pleasing rock-solid retirement income. I'm talking about businesses I believe can continue paying resilient and hopefully growing passive income in the coming years.
If I were relying on dividend cash to pay for my life expenses, I'd want to be confident that the businesses I'm invested in would likely continue sending that money to my bank account each year.
I'll outline two businesses I'd be willing to buy a sizeable position in for a retirement income portfolio.
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MFF Capital Investments Ltd (ASX: MFF)
MFF Capital is one of the most effective investment businesses on the ASX, in my view. It is best known for investing in leading global blue-chip stocks that have strong economic moats/competitive advantages and solid growth prospects.
Currently, its portfolio's biggest positions are names like Alphabet, Mastercard, Visa, Amazon, American Express, Bank of America, Meta Platforms, and Microsoft. Its portfolio can adjust in the coming years, if necessary, as future opportunities arise.
The great thing about the company structure is that it allows MFF's board of directors to decide on the size of the annual dividend. Therefore, investment gains made in previous years can be translated into smoothly-growing dividends – MFF's annual (ordinary) dividend growth streak started in 2018.
Another benefit of the Australian company structure is franking credits. Whenever an Australian company pays income tax to the ATO, it generates franking credits which can be attached to dividend payments and boost the dividend yield for Australians.
The company is planning to pay an annual dividend per share of 16 cents, which translates into a grossed-up dividend yield of 5.3%, including franking credits. That's a solid dividend yield for retirement income, in my opinion.
Telstra Group Ltd (ASX: TLS)
I think Telstra is the leading telecommunications business in Australia, with the most subscribers, the best spectrum assets, and the strongest network (including geographic coverage).
The business operates in a very defensive area – maintaining a connection to the internet seems like a very important utility these days for households and businesses. The mobile network leadership has given the ASX share the confidence to regularly raise mobile prices at a pace stronger than inflation, boosting the average revenue per user (ARPU) and overall profitability.
Secondly, having what's seen as the best network means the business is winning a lot of new subscribers each year. It's currently adding many tens of thousands of new subscribers every six months.
The combination of more users, and more revenue per user, is boosting the bottom line and allowing the business to provide pleasing dividend growth. Its high dividend payout ratio is unlocking a pleasing dividend yield for retirement income.
It has increased its dividend each year starting in 2022 and currently offers a grossed-up dividend yield of 5.4%, including franking credits.
