The Australian Age Pension is a very generous element of the country's retirement system. Despite that, I'd rather rely on high-quality ASX dividend stocks with a good dividend yield.
I prefer the idea of owning great businesses that can provide a pleasing level of passive income, including payout growth that's faster than inflation.
MFF Capital Investments Ltd (ASX: MFF) is one of the ASX dividend stocks I'd be happy to rely on, but it's not the only one. I suggest it's a good idea to have a diversified portfolio when it comes to passive income.
There are a few elements that make MFF Capital such a compelling option.
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High-yield ASX dividend stock
One of the most appealing aspects of the business is that it offers a very pleasing dividend yield.
The business expects to pay an annual dividend per share of 21 cents in the 2026 financial year. That translates into a current grossed-up dividend yield of approximately 6%, including franking credits. That's better than most/all term deposits out there right now. Plus, it offers payout growth potential.
Rising payout
MFF has an impressive record of dividend growth for shareholders. For me, this is one of the most important reasons I prefer the ASX dividend stock compared to the Age Pension.
The business has increased its regular annual payout every year since FY18. In FY25, it increased its annual dividend per share by 4 cents. In FY26, it expects to increase its payout by another 4 cents per share to 21 cents per share.
I think there's a good chance the business will increase its annual payout by another 4 cents per share in FY27. If it does this, it would represent year-over-year growth of 19% and a grossed-up dividend yield of around 7%, including franking credits. That'd be a huge, attractive yield in my view, with likely growth in subsequent years due to its large profit reserve.
Great investments
Virtually all of MFF's value is related to its investment portfolio because it's best-known as a listed investment company (LIC).
It aims to build lasting wealth for shareholders through ownership of a portfolio of "advantaged businesses", which are typically global companies.
Some of its largest holdings include names like Alphabet, Amazon, Mastercard, Visa, Bank of America, Meta Platforms, American Express, and Microsoft.
As a LIC, it has a flexible investment mandate to pursue opportunities worldwide, enabling it to search far and wide for ideas. I think this is very useful to help it produce great returns over time. It can sell and buy shares as it sees opportunities change.
How many MFF Capital shares would it take to match the Age Pension?
Currently, the maximum Age Pension for a single person is approximately $31,200 annually.
To receive that much from MFF Capital, an investor would need 148,572 shares, though I expect the FY27 payout will be larger, so fewer shares would be needed for the next financial year.
I suggest having more than just one high-yield ASX dividend stock in a portfolio, but MFF Capital could certainly be a great holding, in my opinion.
