Forget BHP shares! Buy these ASX dividend shares instead for passive income

BHP is solid, but it's not one of my preferred picks today for passive income.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

BHP Group Ltd (ASX: BHP) shares are usually a solid choice for passive income and I expect that to continue to be the case. However, it's not one of the ASX dividend shares that I'd choose to buy today if I were picking a handful.

Part of the reasoning for that caution about the ASX mining share is that, at the time of writing, it has risen more than 50% in the last year. Normally, I like to consider investing in ASX mining shares when there's weakness surrounding resource demand. That's not looking like the case with the BHP share price today.

Instead, there are other ASX dividend shares that could be a more consistent and potentially provide more passive income.

Person holding Australian dollar notes, symbolising dividends.

Image source: Getty Images

L1 Long Short Fund Ltd (ASX: LSF)

This business is a listed investment company (LIC) which usually invests in businesses that have relatively low price/earnings (P/E) ratios. Of all the sectors it has generated returns from, mining shares has been the sector that has generated the most return for the strategy, of around 200%. Industrials and communication services are the other two areas that have generated a return of more than 100%.

The ASX dividend share also has the ability to short-sell shares that it thinks are overvalued, so it can outperform the market even if a lot of shares are going down.

The LIC has a goal to deliver regular dividend growth for shareholders and it pays a dividend each quarter.

At the rate it's increasing its dividend, it seems likely that the FY26 annual dividend will be approximately 14.6 cents per share, which translates into a grossed-up dividend yield of around 5% at the time of writing, including franking credits.

I think the LIC is more likely than BHP to deliver regular dividend growth each year, compared to the cyclical nature of resource prices.

APA Group (ASX: APA)

APA is a large energy infrastructure business that has a number of compelling assets including a huge national gas pipeline network that supplies half of the country's gas usage.

The business also owns gas storage, gas processing, gas-powered energy generation, solar farms, wind farms and electricity transmission.

By having a diversified portfolio, it can search for the best opportunities in the energy sector to generate the strongest returns.

The ASX dividend share pays for its distribution from the cash flow of its energy portfolio, with underlying earnings steadily growing over the long-term.

APA has increased its annual distribution every year for the past 20 years, making it one of the most reliable ASX dividend shares around.

With how the business is regularly expanding its portfolio, I think the business still has plenty of growth years of ahead. Energy is an important aspect of Australian life, of course.

It's expecting to hike its FY26 annual distribution to 58 cents per security, translating into a distribution yield of 5.8%, at the time of writing.

Motley Fool contributor Tristan Harrison has positions in L1 Long Short Fund. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Apa Group. The Motley Fool Australia has recommended BHP Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

Woman calculating dividends on calculator and working on a laptop.
Dividend Investing

2 ASX dividend shares I'd buy for passive income that can last

For passive income investors, real-world infrastructure assets can be a useful place to look.

Read more »

A large clear wine glass on the left of the image filled with fifty dollar notes on a timber table with a wine cellar or cabinet with bottles in the background.
Dividend Investing

2 ASX shares with dividend yields above 9%

This seems like a great time to invest in these stocks for passive income.

Read more »

A man wearing glasses sits back in his desk chair with his hands behind his head staring smiling at his computer screens as the ASX share prices keep rising
Dividend Investing

$5,000 buys 194 shares in these 2 top ASX dividend stocks

Reliable dividends from essential infrastructure ASX companies.

Read more »

Oil worker using a smartphone in front of an oil rig.
Energy Shares

Buying Woodside shares? Here's the dividend yield you'll get today

Does this oil giant measure up for income?

Read more »

Middle age caucasian man smiling confident drinking coffee at home.
Dividend Investing

Want passive income? These 3 ASX dividend stocks could deliver

These defensive assets have a long history of paying a reliable passive income to their shareholders.

Read more »

A woman wearing a black and white striped t-shirt looks to the sky with her hand to her chin, contemplating buying ASX shares.
Dividend Investing

If I invest $5,000 in Wesfarmers shares, what passive income will I get in 2027?

Wesfarmers has a long history of paying a reliable dividend to its shareholders.

Read more »

Smiling elderly couple looking at their superannuation account, symbolising retirement.
Dividend Investing

Is this the perfect retirement dividend stock with a 7% yield and big upside?

This could be a must add equity.

Read more »

Australian dollar notes in the pocket of a man's jeans, symbolising dividends.
Dividend Investing

Get paid huge amounts of cash to own these ASX dividend shares

I’d love to buy these stocks for dividends!

Read more »