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Are We Entering A New Era For Passive Income? Here Are 2 Asx Stocks To Get Started
The economic picture is regularly changing for investors, which can make it tricky to know how to target passive income ASX stocks.
The Reserve Bank of Australia (RBA) recently decided to reduce the official cash rate by 25 basis points (0.25%) to 3.85%. The market is now expecting multiple rate cuts in the next 12 months, which could take the interest rate to 3.1%.
If rates do go that low (or lower), it could mean ASX dividend shares could become increasingly attractive to investors.
If I were starting to build a passive income portfolio from scratch, there are a few names I'd definitely want to include, such as the following two.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
I view Soul Patts as the king of ASX dividend shares. That's because it has increased its annual ordinary dividend every year since 2000. That's the longest dividend growth streak on the ASX. It has also paid a dividend every year since it listed 120 years ago!
Past dividend payments is not a guarantee of future dividend payments of course, though the business is very motivated to continue that payout record.
Soul Patts is an investment house that owns a diversified portfolio. It has targeted assets that can provide defensive and growing cash flow, which it uses to pay that resilient dividend.
The company's investment portfolio pays dividends up to Soul Patts each year. The investment house then pays for its expenses and sends a majority of it to shareholders. With the retained cash, it can invest in additional assets to boost its cash flow in the future. Some of the areas it has invested in recently includes swimming schools and agriculture.
Using the last two dividends declared by the passive income ASX stock, it has a grossed-up dividend yield of 3.8%, including franking credits.
MFF Capital Investments Ltd (ASX: MFF)
I think most investors can benefit from increasing the geographical diversification of their assets – it could lead to greater returns.
It can be difficult to know where to invest money ourselves, so why not just let a highly skilled investment team make international share picks for low costs?
Most of MFF's business is about investing as a listed investment company (LIC) in global companies with strong competitive advantages. Those businesses include Alphabet, Mastercard, Amazon, Visa, American Express, Bank of America, Microsoft, Meta Platforms and Home Depot.
I also like that the business has added further investment professionals to its team following the acquisition of Montaka. Growth of Montaka's funds under management (FUM) can add to operating profits, boosting MFF.
I think MFF looks like good value. The business had a weekly net tangible assets (NTA) of $4.94, and the MFF share price is trading at a 12% discount to this. I think this is a good time to invest in the business.
It has grown its annual dividend per share every year since 2018, which is a pleasing record and steadily improving.
It's expecting to pay a grossed-up dividend yield of 5.2% for FY25, including franking credits.
The post Are we entering a new era for passive income? Here are 2 ASX stocks to get started appeared first on The Motley Fool Australia.
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Bank of America is an advertising partner of Motley Fool Money. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. American Express is an advertising partner of Motley Fool Money. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has positions in Mff Capital Investments and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Bank of America, Home Depot, Mastercard, Meta Platforms, Microsoft, Visa, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has positions in and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Alphabet, Amazon, Mastercard, Meta Platforms, Mff Capital Investments, Microsoft, and Visa. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
