If you gave me a choice between good, high-yield ASX dividend shares and a good term deposit, I'd take the shares every time.
That's because I really like the potential of a higher income return, potential payout growth and possible long-term capital growth.
When I think about two ideas with very high yields, growing payouts and the potential for capital growth, the following two names are ones that spring to mind.
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Future Generation Australia Ltd (ASX: FGX)
Future Generation Australia is an almost unique listed investment company (LIC) which is invested in a portfolio of funds from more than a dozen fund managers who all work for free so that the LIC can donate 1% of its net assets each year to youth charities.
I like the investment strategy of the LIC to give more exposure to small and medium businesses than the S&P/ASX 300 Index (ASX: XKO) because I think those companies can deliver stronger long-term earnings growth (and hopefully share price growth).
Impressively, Future Generation Australia is invested in more than 400 shares across different sectors, so it does give investors pleasing levels of diversification, in my view.
As a LIC, Future Generation Australia has control over the size of the dividend that it declares, as long as it has the profit reserve to do so.
The ASX dividend share has increased its payout each year since 2015 – a decade of dividend increases! Its 2025 payout translates into a grossed-up dividend yield of close to 8%, including franking credits. I think that's a great starting yield.
WAM Microcap Ltd (ASX: WMI)
WAM Microcap is another LIC, though this one offers much more specific investment exposure. It focuses purely on small-caps, which can be some of the most little-known, exciting opportunities on the ASX.
I think WAM Microcap's portfolio of shares could be both undervalued and have lots of growth potential.
It's invested in dozens of shares, though not quite as many as Future Generation Australia.
In its April update, WAM Microcap said that its portfolio had delivered an average return per year of 14.2% since inception in June 2017, excluding fees, expenses and taxes. That's double the return of its benchmark.
Since FY18, the ASX dividend share has increased its payout almost every year, aside from FY24 when it maintained the annual dividend.
Its projected dividend for FY26 is 10.7 cents per share, which translates into a grossed-up dividend yield of 10.3%, including franking credits.
With that level of yield, I'm only expecting slight annual dividend growth for the foreseeable future, but that'd be exceptional levels of passive income each year.
