ASX dividend shares can be a great source of income, with the ability to deliver capital gains too.
The RBA cash rate is much higher these days, so we can get better returns from cash in the bank. However, one of the drawbacks is there’s no growth for inflation protection.
I think the right ASX dividend shares can provide a mixture of an appealing dividend yield and underlying growth to offset inflation. I like the below two for their yields and underlying value.
Hearts and Minds Investments Ltd (ASX: HM1)
Hearts & Minds is a listed investment company (LIC) that looks to provide investors with exposure to some of the best investment picks from leading fund managers.
There are no management fees or performance fees with Hearts & Minds, instead it donates money to leading Australian medical research institutes such as SpinalCure, Cerebral Palsy Alliance and Kids Critical Care Research.
Some of the picks in the LIC’s portfolio are decided by a core group of ongoing fund managers, while some of the choices relate to picks from an annual investment conference.
Since the ASX dividend share’s inception, the portfolio has delivered an average return per annum of 10.1%.
It paid an initial $0.12 dividend per share in FY21 and this has grown to $0.14 per share for FY24. This translates to a dividend yield of 7.6% including the franking credits.
Hearts & Minds had a pre-tax net tangible asset (NTA) of $3.15 at 22 March 2024, so the LIC is currently at a 17% discount to this.
Future Generation Australia Ltd (ASX: FGX)
Future Generation is fairly similar LIC – it invests in a group of fund managers’ funds and those fund managers work for free so Future Generation can donate 1% of its net assets each year to charities focused on help young Australians.
I think it’s a great initiative.
The Future Generation portfolio has delivered an average return per year of 9.1% since September 2014, though it doesn’t include the bonus of franking credits.
It has grown its annual dividend per share each year since 2015 and the ASX dividend share currently has a dividend yield of 8.1% including the franking credits.
In terms of the discount to the NTA, the Future Generation share price is currently at a 13% discount to the February 2024 NTA.
