At a time when inflation is higher and there has been a shift in the taxation system, I think it could be a good idea to look at ASX dividend shares as a way to build a second income.
I'm building a second income myself, and I'm focusing on businesses I believe can provide pleasing and growing payouts.
Rising payouts are appealing because we don't need to invest as much to achieve passive income growth.
The below two are among my favourites for investing in dividend-paying businesses.
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Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
I'd call this business the king of dividend payments in Australia. It has increased its payout every year since 1998, which is the longest growth streak on the ASX.
It has been listed on the ASX for more than 120 years and it has paid a dividend in every one of those years, including through the wars, global pandemics, recessions and so on.
The investment conglomerate has a diversified investment portfolio across a wide range of sectors including telecommunications, energy, swimming schools, agriculture, water entitlements, industrial properties, and plenty more.
Soul Patts is a single company, but it has a variety of assets, so it's not reliant on one area.
The business has grown its dividend at a compound annual growth rate (CAGR) of 11.9% over the last five years, which is an excellent pace of improvement.
On top of that, the company's portfolio value has steadily increased over the years as its existing investments grow organically and it regularly makes new investments.
As the cash flow from its portfolio grows, it can fund larger dividend payments. In the FY26 half-year result, it reported cash flow growth of 15.4% to $334 million, funding a 9.1% increase of the interim dividend.
Its latest two half-year dividends come to a grossed-up dividend yield of 3.6%, including franking credits.
MFF Capital Investments Ltd (ASX: MFF)
The other ASX dividend share I really want to highlight as an option for a second income is MFF, which is best known as a listed investment company (LIC) that focuses on international shares.
MFF aims to invest in competitively advantaged businesses that have strong economic moats, great profit growth potential and are priced attractively. Its portfolio has performed and I think the US blue-chips it owns are very appealing options.
But, the LIC can provide good diversification with a single investment – we don't need to monitor the entire share market.
MFF has committed to raising the passive income payments for shareholders, which I think makes it an appealing option for passive income.
The ASX dividend share expects to grow its FY26 annual dividend by 23.5% – that's a great increase, in my opinion.
At the time of writing, it offers a grossed-up dividend yield of 6%, including franking credits. I think this is a great time to invest for the long-term and for a second income.
