MFF Capital Investments Ltd (ASX: MFF) is one of my favourite picks for dividend income, and I regularly put my money where my mouth is by adding to my position.
It offers everything that I want in an investment for my household's finances – a good dividend yield, dividend growth, capital growth and some diversification benefits.
I've made it one of the biggest positions in my portfolio, and I'm very optimistic that it will continue to provide me with what I'm looking for. This week, I decided to invest another $2,000.
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Diversification
I'm not looking for excessive diversification, but I like owning different investments that can perform well and do so through different investment exposures. Relying on a few businesses or one sector to deliver all our returns could be a mistake.
MFF aims to own very high-quality businesses at good prices, as it benefits from the portfolio's earnings growth.
Some of MFF's current largest holdings include Alphabet, Mastercard, Amazon, Visa, Bank of America, Meta Platforms, American Express and plenty of others.
It's this investment strategy that has allowed the business to deliver an average total shareholder return (TSR) of 15.9% per year over the prior five years. I think the listed investment company (LIC) is worth owning on a long-term basis.
Good dividend income plus growth
As a LIC, the board of directors is able to declare the size of the dividend, which is excellent for investors who want steady dividend income.
MFF has built such a large profit reserve that the business is able to deliver a sizeable and growing dividend each year.
It has increased its regular annual dividend each year since FY18. The FY26 annual dividend has been guided at 21 cents per share, translating into a grossed-up dividend yield of 6.1%, including franking credits. The FY26 payout is expected to grow by 23.5% compared to FY25.
MFF has increased its half-year payout by 1 cent per share every six months since October 2023 and I think it's likely to continue that trend unless there's a major share market crash (and I'd still expect slight growth if that happened). With the current growth trend, the FY27 payout year-over-year growth could be 19% to 25 cents per share.
I'm guessing the FY27 grossed-up dividend yield, at the time of writing, could be 7.3%, including franking credits. That'd be great dividend income, in my view.
Capital growth
MFF Capital share price growth is not certain, particularly in the short-term, because of potential declines in the share market and changes in what price investors are willing to pay relative to the MFF net tangible assets (NTA) per share.
But, if MFF's portfolio (both existing and future positions) are able to deliver double-digit returns, then MFF can deliver rising payouts and long-term growth.
Past performance is not a guarantee of future returns, of course. But, at the time of writing, the MFF share price has risen close to 80% in the past five years (along with the dividend payments).
I'm hopeful that MFF can continue to deliver long-term capital growth and dividend growth for my portfolio.
