BHP Group Ltd (ASX: BHP) shares have been a very effective ASX dividend share to invest for passive income at certain times over the last few years. When the ASX mining share declines in value, it can boost the potential future dividend yield.
The business is exposed to a number of different commodities including iron ore, copper and coal. The BHP share price has risen by more than 20% in the past six months, which has been a headwind for a high dividend yield.
However, I'm not sure this is the best time to invest because of how strongly the ASX mining share has performed in recent times. Instead, I think the following ASX dividend shares could be a better buy.
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L1 Long Short Fund Ltd (ASX: LSF)
This is a listed investment company (LIC). Its purpose is to invest in a mixture of ASX and global shares. It can utilise short selling as part of its strategy.
It likes to look at areas of the share market with a lower price/earnings (P/E) ratio for opportunities. It thinks "low P/E stocks will strongly outperform high P/E stocks (in general) over the coming 1-2 years".
Since the strategy's inception, materials (mining) has been the best-performing sector for the portfolio. So, over time, the LIC has been an effective way to make investment returns from the mining sector with diversified exposure, not just by owning BHP shares.
Since the LIC's beginning in April 2018, its overall portfolio has returned an average of 15.1% per year. This has helped the ASX dividend share deliver investors a growing dividend since it started paying one in 2021.
It has started paying a quarterly dividend, giving investors more regular cash flow. The annualised dividend of 14 cents per share translates into a grossed-up dividend yield of 4.6%, including franking credits.
The business is rapidly building its profit reserve, which can help fund even larger payouts.
APA Group (ASX: APA)
BHP is increasingly putting its focus on copper, and that's useful for the diversification of its earnings. But, it's still quite reliant on its iron ore earnings to deliver good passive income for investors. This means it needs China to continue buying vast quantities of the commodity (and paying a good price for it).
APA's earnings are much more consistent – it owns a vast portfolio of energy assets, including a massive national network of gas pipelines. It reportedly transports half of the country's usage.
The business also owns solar farms, wind farms, large batteries and electricity transmission assets connecting different states' energy grids. As APA continues to invest in its growing portfolio of various energy assets, it is building its cash flow potential to fund larger payouts.
Pleasingly, a significant majority of APA's revenue is linked to inflation, so the business has benefited from the period of higher inflation.
On the distribution side of things, the business has grown its annual payout every year since 2004 and it's expecting to grow the passive income again in FY26 to 58 cents per security. At the time of writing, that translates into a forward distribution yield of 6.6%.
