While the Australian Age Pension is one of the most generous in the world, I'd rather rely on quality, high-yield ASX dividend stocks.
I enjoy owning businesses that are able to provide a good level of passive income and payout growth over time.
Australian Foundation Investment Co Ltd (ASX: AFI) is one of the ASX dividend stocks I'd be comfortable relying on, though it wouldn't be the only one. I believe it's important to have a diversified portfolio when it comes to dividends.
There are a few aspects that make the listed investment company (LIC) an appealing option.
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Diversification
If I had to rely on an ASX dividend stock to continue paying passive income across all economic conditions, I'd pick an investment with the ability to pay resilient passive income.
Some older Australians who may have relied on dividend income from large ASX bank shares and ASX mining shares may already have seen their payouts cut this decade. At the start of the 2020s, we saw COVID-19 impact bank payouts. Iron ore price volatility has led miners to reduce their payouts.
The AFIC business model is about giving investors exposure to a portfolio of ASX blue-chip shares, allowing the LIC can provide investors with a mixture of passive income and long-term capital growth.
Some of the positions in the portfolio include BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Macquarie Group Ltd (ASX: MQG), Wesfarmers Ltd (ASX: WES), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Transurban Group (ASX: TCL).
But, it owns plenty of other ASX shares in the portfolio too.
High-yield ASX dividend stock
One of the most appealing aspects of Australian Foundation Investment Co is the pleasing level of passive income it can provide to our bank accounts.
The business has been very consistent with its payout this century, giving investors a high level of income security.
AFIC recently announced that it intends to declare a final dividend of 14.5 cents per share, as well as a special dividend of 2.5 cents per share.
That means its regular dividend for FY26 equates to a grossed-up dividend yield of 5.5%, including franking credits, at the time of writing. Including special dividends, its payout translates into a grossed-up dividend yield of 6.5%, including franking credits.
While the company's regular annual dividend isn't increased every single year, it has increased regularly since FY22.
Low costs
The LIC has one of the lowest costs in the country when it comes to the annual management costs. That's important because it significantly helps the net return of the portfolio.
The high-yield ASX dividend stock has an annual management fee of 0.16%, which means most of the returns are staying in the hands of investors rather than being lost to management fees or performance fees.
With a solid long-term portfolio net return, the business has built an excellent profit reserve, enabling the business to continue paying good dividends in the long-term.
How many AFIC shares would it take to match the Age Pension?
Right now, the maximum Age Pension for a single person is approximately $31,200 annually.
To receive $31,200 annually from AFIC (excluding special dividends), an investor would need 117,736 Australian Foundation Investment Co shares based on the expected FY26 payout excluding the franking credits and 82,416 AFIC shares including the franking credits.
I'd suggest Australian investors should have more than just one high-yield ASX dividend stock in a portfolio, though AFIC would be an effective inclusion, in my opinion.
