The ASX passive income share MFF Capital Investments Ltd (ASX: MFF) is currently my number one favourite idea for dividends.
I recently called Washington H. Soul Pattinson and Co Ltd (ASX: SOL) the most reliable ASX dividend stock around, which I really like. It's the biggest position in my portfolio thanks to numerous buys I've made over the years and its strong performance.
But, as of today, my most preferred long-term buy for passive income is the investment business MFF. It's also one of the largest positions in my portfolio, and I'm planning to buy plenty more of it in the coming years.
Its core strategy is to invest in high-quality global businesses with strong competitive advantages and an attractive earnings growth outlook.
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Dividend growth
I believe dividend growth is essential for a good ASX passive income share, as this helps grow the cash flow to our bank accounts and also protects against the negative effects of inflation.
While MFF doesn't have the dividend growth record of Soul Patts or other long-term dividend growers, it has increased its regular dividend every year for the past seven years.
It surprised me by declaring an FY25 final dividend of 9 cents per share, which was 12.5% stronger than the 8 cents per share I was expecting.
Investment businesses like MFF are able to turn capital gains from their portfolio into a smoothed-out, regularly increasing dividend.
Over the years, it has built up its profit reserve from prior years of investment gains, giving it the financial flexibility to pay good dividends for multiple years to shareholders without making a profit.
Dividend yield
Despite the rise of the MFF share price, its annual dividend has risen strongly, too, ensuring the company still provides a good dividend yield for investors.
While I'm expecting further dividend growth in FY26, I'll use the dividend payments for FY25 to highlight the current dividend yield for this ASX passive income share.
It currently has a grossed-up dividend yield of 5.1%, including franking credits, at the time of writing. That's appealing compared to the income levels offered by term deposits.
Investment flexibility and diversification
One of the main reasons I like MFF as an ASX passive income share is the portfolio's diversification. Many businesses are stuck being banks or supermarkets, but MFF's holdings can evolve.
It can invest in any industry it wants to in shares across the world, which gives it extremely pleasing flexibility to find the best investments, whether they're large businesses or up-and-coming ideas.
I also like how MFF recently acquired the funds management business Montaka. This means it has a broader research team that can identify opportunities for the portfolio and provide another avenue for earnings growth.
It has investments in North America, Europe, and Asia. I expect the portfolio to expand to new names in the coming years, which could drive the next stages of investment returns.
