Investing in ASX dividend shares

For some investors, dividends are the backbone of a diversified portfolio… for others, they are not a priority. It just depends on your investment approach and temperament.

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What are ASX dividend shares? 

One of the benefits of investing in the share market is the potential to receive income via dividends from the shares in your portfolio. Dividends are the payment of company earnings to shareholders (the company owners). They are a form of passive income that income investors seek. 

ASX dividend shares (also known as income stocks) are companies listed on the Australian Securities Exchange that regularly pay dividends to their shareholders. They are typically well-established companies that are consistently profitable and committed to rewarding their investors through dividend payments. 

To receive dividends, all an investor needs to do is buy dividend shares. A dividend payment is deposited automatically into the investor's bank account when the relevant company declares dividends.   

Why invest in them? 

Dividends provide a way for investors to receive a return on their investment without actively trading shares. This can be particularly useful when the market is down and achieving capital gains on share purchases is challenging. 

Dividends can provide a good hedge against inflation, particularly if they increase over time, and they may also carry certain tax advantages thanks to franking credits. This can make them a tax-effective form of income. 

Companies pay dividends out of their profits, so companies that pay regular dividends need to be consistently profitable. Large companies that pay dividends tend to be fairly stable. But dividends are not guaranteed and vary depending on a company's profitability. 

Top ASX dividend stocks

Investors can seek out dividend-paying companies across a variety of market sectors. Here are three top players representing the mining, banking and financial services sectors, ranked by market cap from high to low.

Company Description 
BHP Group Ltd

A global commodities producer operating in more than 90 locations, including

Australia, South America, the United States and Canada. Products include iron ore,

copper, nickel, and metallurgical coal 
Westpac Banking Corporation

Provides consumer, business, and institutional banking and wealth management

services through a portfolio of financial services brands and businesses 
Washington H. Soul Pattinson

and Co. Ltd (ASX: SOL)
An Australian investment company with a diverse portfolio of investments

across various industries, including healthcare, resources, telecommunications,

and financial services.


BHP is a leading global commodities producer and the top-ranking company by market cap listed on the ASX. The company mines copper for renewable energy, nickel for electric vehicles, potash for farming, and iron ore and metallurgical coal for steel production. 

BHP merged its oil and gas portfolio with Woodside Petroleum Limited (ASX: WPL) in the first half of 2022 and agreed to acquire copper miner Oz Minerals Limited at an enterprise value of $9.6 billion in the second half.  

BHP closed the transaction with Oz Minerals in the first half of 2023, strengthening its portfolio in copper and nickel. This is in line with the company's strategy to meet the increasing demand for critical minerals needed for electric vehicles, wind turbines, and solar panels to support energy transition. 


Established in 1817, Westpac is Australia's oldest bank and one of the country's four major banking corporations. It is also one of the largest banks in New Zealand. The company serves more than 13.9 million customers through its portfolio of brands, including St George, Bank of Melbourne, BankSA, BT, and RAMS. 

In July 2023, Westpac announced a restructure aimed at supporting growth. The bank has been simplified over the last few years, with nine businesses exited. Going forward, there will be dedicated group executives responsible for Consumer Banking and Business Banking. 

During the first half of FY23, Westpac reported improved financial results, with net profit up 22%. Earnings per share increased by 26% compared to 1H22, and the company declared an interim dividend of 70 cents per share. Westpac is working on restoring its mortgage market position and sees business banking as a growth opportunity. 

Washington H. Soul Pattinson and Co. Ltd

Washington H. Soul Pattinson and Co. Ltd has a long history having been founded in 1872 as a pharmacy business. Over the years, it has evolved into an investment conglomerate with diverse investments across various industries. 

The company has significant holdings in the resources sector, particularly in coal mining and energy, as well as holdings in the telecommunications, healthcare, property, and financial services sectors. It is invested across multiple asset classes, including listed equities, private equity, private credit, and property. 

In 1HFY23, statutory profit after tax was up $1.1 billion, and net asset value grew 16%. 

Washington H. Soul Pattinson and Co. declared an interim dividend of 36 cents per share, up from 29 cents per share in the prior corresponding period. This extends the company's track record as the only company in the All-Ordinaries Index to pay dividends every year since listing in 1903, increasing them yearly for the last 23 years. 

What to look for when buying dividend shares? 

If you're looking to invest in dividends, first check whether the company you are considering has a history of paying dividends. If it checks this box, many investors look at the price-to-earnings ratio (P/E ratio). This indicates what people are willing to invest for each dollar of earnings. 

The dividend investor will also look at the dividend yield of a share. The yield is calculated by dividing a stock's annual dividend payments by the share price. Of course, the dividend yield can change over time. A high dividend yield is not always good news. A fall in the share price (which could be due to bad news) will increase the dividend yield. 

The dividend payout ratio is a metric used to determine how 'generous' different companies are when paying dividends. It is the ratio of dividends paid to shareholders relative to a company's net income. 

Focusing on dividends can help you maximise your investment returns. Dividend-paying companies typically endeavour to consistently maintain dividends or produce dividend increases, even during economic instability. This means dividend returns can be more stable and reliable than capital gains. Dividends can also provide share price support during periods of economic stress.

Pros of investing in dividend shares

Income stream: Dividend income provides investors with a stream of income to support their lifestyle (or reinvest to make even more dividends). Dividends can also come franked, which helps reduce the tax payable by shareholders. 

Maximise returns: Dividend-paying shares allow shareholders to make returns without trading shares. Investors who buy shares that don't pay dividends rely on share price appreciation and must sell to lock in these gains.  

And the cons

Capital gain potential: Because dividend-paying shares are typically large, well-established companies, they may have less potential for capital growth than smaller, up-and-coming businesses. 

False sense of safety: Dividend stocks are known for being safe, reliable investments – blue chip stocks. However, just because a company produces dividends doesn't automatically make it a safe bet. Companies have even been known to use dividends to placate frustrated investors when the stock price isn't moving.

Are ASX dividend shares a good investment? 

Dividends are an important contributor to investment returns, providing investors with income even when the market takes a downturn or is moving sideways. Because dividends are derived from company profits, the payment of dividends is generally seen as a sign of financial health. 

Buying shares in established companies with a record of returning earnings to shareholders adds stability to an ASX shares portfolio. Dividend-paying shares provide a source of regular income that can cushion the impact of a potential decline in share prices while also providing investors with the chance to benefit from potential share price increases. 

This article contains general educational content only and does not take into account your personal financial situation. Before investing, your individual circumstances should be considered, and you may need to seek independent financial advice.

To the best of our knowledge, all information in this article is accurate as of time of posting. In our educational articles, a 'top share' is always defined by the largest market cap at the time of last update. On this page, neither the author nor The Motley Fool have chosen a 'top share' by personal opinion.

As always, remember that when investing, the value of your investment may rise or fall, and your capital is at risk.

Motley Fool contributor Katherine O'Brien has positions in BHP Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.