I am not an investor who buys shares solely for the purpose of receiving passive dividend income. Don't get me wrong, I love bagging a payout from an ASX dividend stock as much as the next investor. However, my portfolio's overall priority is obtaining the highest rate of return possible through a combination of capital growth and dividends.
Saying that, there are a few stocks in my portfolio whose sole purpose is providing a stream of dividend income. This cash flow is useful for a few reasons. Firstly, it provides ballast. If there is a stock market correction or crash, the income that I receive from these shares helps buttress my portfolio. Secondly, this cash flow can be deployed to buy other stocks for the portfolio. This means I don't have to constantly rely on fresh capital injections, or sales of other positions, to fund new stock buys.
One of the ASX dividend stocks I lean on to provide this cash flow is Plato Income Maximiser Ltd (ASX: PL8).
Plato Income Maximiser is a listed investment company (LIC) that is specifically designed to deliver high levels of fully-franked dividends to its investors. Like most LICs, it owns an underlying portfolio of investments that it manages on behalf of its shareholders.
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This ASX dividend stock pours cash into my portfolio every month
This portfolio consists of blue-chip dividend stocks. As of the most recent data, these included Beach Energy Ltd (ASX: BPT), National Australia Bank Ltd (ASX: NAB), BHP Group Ltd (ASX: BHP), Telstra Group Ltd (ASX: TLS), and Wesfarmers Ltd (ASX: WES).
These portfolio holdings pour dividend cash flow into Plato's coffers, which the LIC passes on to its shareholders in monthly dividend payments. These monthly payments represent highly beneficial cash flow for my portfolio thanks to this regularity.
In recent years, Plato's monthly dividends have come in at 0.55 cents per share, always with full franking credits attached. The annual total of 6.6 cents per share gives this ASX dividend stock a trailing dividend yield of 4.55% at the $1.45 share price at the time of writing.
However, I was fortunate enough to pick up my Plato shares at a price much closer to $1 per share. This means that my cash flow yield-on-cost is sitting closer to 6%. The benefits of that yield to my portfolio and ability to keep adding shares to it are obvious.
Although the cash flow that this ASX dividend stock provides is enormously valuable to my investing, it's not the only reason I own Plato shares. High dividends are fantastic, but they are not worth buying a share for if they come at the expense of my capital, as payouts from some other popular ASX income stocks can.
Fortunately, in Plato's case, this LIC has actually outperformed the broader market since its inception in 2017. As of 31 January, Plato shares have delivered an overall return (growth plus dividends) of 10.3% per annum. That's 0.1% higher than its S&P/ASX 200 Index (ASX: XJO) benchmark.
