For some investors, a regular and reliable passive income stream, rather than share price gains, is the goal.
This becomes even more important as we transition into the retirement phase and can benefit from the gains to be had from franking credits, but for the purposes of this article, I'll assume the investor is a wage earner.
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Look for more than just high dividends
If you filter the stocks on the ASX, it's possible to come across some that appear to be paying a remarkably high dividend yield.
I'd argue that it's best to approach these with caution, with very large yields likely to be unsustainable over the longer term.
In contrast, here are three shares that have a combination of solid dividend yields and solid business models.
The first is Regal Partners Ltd (ASX: RPL), which recently booked what broker Morgans called "another good result" for the first half, growing its funds under management, performance fees, and net profit.
Morgans said regarding the company:
Whilst difficult to forecast, we are confident RPL can continue to grow funds under mangement as performance persists and the alternative strategies reach scale. On this basis we have a BUY recommendation and $4.00 price target.
Considering the share price is $2.70 at the time of writing, that would be a healthy capital gain if that price were achieved.
But on the dividend yield front, Morgans is forecasting 8.1% for this year, followed by 6.9% and 7.8% in the following years.
In order to generate $1000 per month in dividends (the dividends are actually paid six-monthly), you'd need to own $148,148 worth of stock at the 8.1% return level.
Then there is Atlas Arteria Ltd (ASX: ALX), which is a toll roads operator.
Infrastructure companies tend to be predictable in terms of their earnings and debt obligations over the long term, and therefore their dividends can follow suit.
Broker Morgan Stanley is forecasting Atlas to pay a 7.9% return this year, with that maintained out to FY28.
At that rate, you would need to own $151,898 of the stock to generate $1000 per month – once again, this stock pays dividends half yearly.
Finally, there is the La Trobe Private Credit Fund (ASX: LF1), which does pay out month by month.
This fund aggregates loans across residential, industrial, and commercial borrowers, with 10,789 loans under management.
The fund is currently paying a return of 7.57%, meaning you would need to own $158,520 worth of the stock to generate $1000 per month.
