In an era where capital gains and negative gearing are less appealing, ASX dividend shares could be particularly attractive to invest in. Given how high term deposit rates are now, an investment may need a particularly high dividend yield to be appealing.
Ultra-high dividend yields may not necessarily be the best choice for passive income because their payouts may be less reliable.
So, if we aim for yields that are a little lower, investors may get a good dividend yield, payout growth and hopefully long-term capital gains.
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WCM Global Growth Ltd (ASX: WQG)
This business is a listed investment company (LIC), which I'd describe as one of the ideal types of investments for passive income.
LICs invest in other shares, giving investors diversification through a single investment, while being a company gives the board of directors control over the size (and reliability) of the dividend, assuming the company has the accounting profit reserve to do so.
High-performing LIC investment teams can deliver pleasing portfolio returns, a solid rising dividend and an increasing profit reserve.
That's exactly what it has been happening at WCM Global Growth – the ASX dividend share's portfolio has delivered an average return after fees of 15.8% per year since inception in June 2017. Past performance is not a guarantee of future performance, of course.
The company's strategy is based on the belief that corporate culture is the biggest influence on a company's ability to grow its competitive advantages (otherwise known as an economic moat).
It's growing its quarterly dividend every quarter and has been doing so since FY23. Its next four dividends are guided to come to 9.59 cents per share, which translates into a grossed-up dividend yield of 7.2%, including franking credits, at the time of writing.
MFF Capital Investments Ltd (ASX: MFF)
The other ASX dividend share I want to highlight is investment business MFF.
While it was a pure LIC for most of its life, it now owns a small funds management business called Montaka. That move gives MFF a larger team of professionals to draw on for investment ideas and an additional earnings stream.
But, it's important to note that virtually all of the ASX dividend share's value is still tied up in its excellent investment portfolio that is focused on global shares that are competitively advantaged with long-term growth potential.
MFF has hiked its regular annual dividend per share each year since FY18. Its half-year dividend has been hiked by 1 cent per share every six months for the last few years and I expect that to continue for the foreseeable future. If that happens in FY27, it offers a grossed-up dividend yield of 7.02%, including franking credits, at the time of writing.
Of course, these are not the only two ASX shares I have my eyes on.
