At a time when the Reserve Bank of Australia (RBA) is reducing the cash rate, I think it's a great idea to look at ASX shares with relatively high dividend yields.
For every RBA rate cut, it reduces the attraction of numerous low-risk assets/products such as savings accounts and term deposits.
While the highest dividend yield isn't necessarily the best choice, I think there are some that have attractively large payouts thanks to a high dividend payout ratio and/or that business being undervalued.
Considering the two businesses below offer dividend yields that are more than two percentage points higher than the RBA cash rate, I'm calling them appealing ASX shares for passive income and long-term capital growth.
APA Group (ASX: APA)
APA is one of the largest energy asset owners in Australia, with a huge gas pipeline network across the country. The business transports half of the nation's gas usage, making it a very important player in the Australian economy.
It also has investments across electricity transmission, renewable energy generation, gas storage, gas processing and gas-powered energy generation.
I like the diversified approach it has to energy assets, by looking at a broad range of areas, it gives itself the best chance of finding the strongest-returning opportunities.
It has largely focused on its core competency of gas pipelines, and APA regularly expands its asset base by constructing a new pipeline, boosting its cash flow. Most of its revenue is linked to inflation, so its top line is regularly growing and this has helped offset the higher cost of interest in its financials.
The business pays for its growing distribution from that cash flow, which has allowed it to increase its payout every year for the past two decades. While that's not certain to continue forever, it is expecting to increase its distribution to 58 cents per security in FY26, translating into a dividend yield of 6.6% at the time of writing.
GQG Partners Inc (ASX: GQG)
GQG is one of the largest fund managers on the ASX, though the GQG share price is 14% lower than where it was a month ago.
It's normal for fund managers to experience volatility, considering their funds under management (FUM) is linked to the performance of share markets, which do go down sometimes.
It can also be prudent for a fund manager to be a bit more defensively minded sometimes, if it thinks the share market has become stretched – that's currently how GQG is positioning its investments.
Over the past several years, GQG has shown its ability to deliver long-term outperformance and I believe it's capable of continuing that track record. It is not priced for much growth, so if its funds can continue growing, that would be a strong organic tailwind for the FUM and the GQG share price.
In the FY25 half-year result, it reported 16.8% growth of average FUM to US$162.9 billion, 12.7% growth of distributable earnings to US$236.5 million and 14.5% growth of the declared dividend per share to US 7.34 cents. If it were to declare the same dividend per share in the second half of 2025, that would translate into a dividend yield of close to 13%.
If GQG can maintain its FUM, earnings and dividend, its dividend yield alone could outperform the return of the S&P/ASX 200 Index (ASX: XJO). I think it could be underrated by the market over the long-term, particularly if its main funds can outperform their benchmarks in the coming years.
