There are very few Australian passive income stocks that I think could challenge MFF Capital Investments Ltd (ASX: MFF) as one of the leading ASX dividend stalwarts.
MFF is a listed investment company (LIC), which is the core driver of shareholder returns. It also owns a separate funds management business (which was acquired) that is focused on providing international share funds to clients and gives MFF more research capabilities.
There are significant benefits for investors who want investment income, so let's run through those advantages.
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Large and growing dividend yield
I'm sure many passive income seekers want to know about the dividend, so let's start there.
Impressively, its regular annual dividend has grown in consecutive years going back to 2018. Not many ASX dividend shares can point to a dividend record like that.
But, it's not just the dividend growth that's pleasing – the dividend yield is also very good.
The ASX dividend stalwart is expecting to pay an annual dividend per share of 21 cents in FY26.
At the time of writing, this translates into a forward grossed-up dividend yield of 6.5%, including franking credits.
If the business continues its growth pattern of increasing the payout by 1 cent per share every six months, that could translate into a forward grossed-up dividend yield of 7.2%, including franking credits in FY27.
Good investment process
MFF aims to take a "long-term view and focus on a select group of businesses that offer attractive combinations of quality and value, clear our high opportunity cost hurdle and create the potential for self-reinforcing growth."
The ASX dividend stalwart wants to take an investment mindset that focuses on duration and enables the power of compounding.
Its portfolio has around 25 holdings in some of the world's best listed businesses, ensuring that its portfolio can be fairly concentrated so that high-performing ideas can have a meaningful impact on the overall returns.
Diversification and strong total returns
MFF's portfolio has been constructed to have great ideas, but I believe they are from a sufficient number of sectors and countries to mean that the portfolio is diversified enough to not be at risk from any particular issue.
Some of the ASX dividend stalwart's biggest investments are across payment giants, US tech titans, retail, healthcare, banking and alternative asset and private equity fund managers.
MFF's investment strategy has clearly performed well for investors because it has delivered an average total shareholder return (TSR) of 15% per year over the past five years.
It looks good value to me after falling in recent weeks amid the Middle East uncertainty.
