A dividend giant I’d buy over BHP shares right now!

Owning BHP Group Ltd (ASX: BHP) shares has regularly meant receiving sizeable passive income. But, there are other ASX dividend giants that appeal to me more for payouts.

BHP and Commonwealth Bank of Australia (ASX: CBA) are the two largest businesses on the ASX, but there are quite a few names that have bigger attraction.

The name I want to highlight today is Future Generation Australia Ltd (ASX: FGX), one of the most appealing listed investment companies (LICs) Aussies can buy for income.

Why the ASX dividend giant’s setup is so appealing

A LIC has a company structure, just like any other company. But, instead of selling products or services, the LIC is trying to generate profit for shareholders by generating investment returns with a portfolio.

The LIC structure allows the board of directors to declare the size of dividends they want to, assuming the business has an accounting profit reserve that’s large enough for the desired payout. LICs can provide shareholders with steadily rising dividends thanks to this dynamic.

Future Generation Australia is no ordinary LIC, though. Usually, the portfolio of a LIC is managed by a fund manager that charges management fees.

The ASX dividend giant I’m highlighting today doesn’t charge any management fees. Instead, it donates 1% of the value of its net assets each year to charities focused on helping youths and the fund managers work for free to enable this initiative. It’s a fantastic LIC, in my view.

Diversification

Investors usually like to see that their wealth is diversified – it’s good not to have all one’s eggs in one basket.

Future Generation Australia’s portfolio has significant diversification. It’s not managed by one fund management outfit. The LIC is invested across the funds of a number of fund managers, who all work for free.

It’s invested in 16 funds, that each have their own portfolio, giving shareholders significant diversification. Some of the fund managers include Paradice, Bennelong, L1 Group Ltd (ASX: L1G), Cooper Investors, QVG, Vinva, Eley Griffiths and Lanyon.

According to the ASX dividend giant, there are more than 400 underlying shares across different sectors. Pleasingly, it has a much smaller weighting to ASX financial shares, giving investors varied exposure to the ASX share market than the S&P/ASX 300 Index (ASX: XKO).

Dividend potential

On the passive income side of things, I think Future Generation Australia is a very appealing investment.

It has increased its payout every year between 2015 to 2025 – a decade of dividend increases is the type of reliability I’d want to see.

The LIC’s FY25 annual payout has been guided to be 7.2 cents per share. That translates into a grossed-up dividend yield of 7.9%, including franking credits, at the time of writing. Broker UBS estimates that BHP, on the other hand, could pay a grossed-up dividend yield of 5.3% in FY26 to owners of BHP shares.

Future Generation looks to me like the clear winner for passive income.

The post A dividend giant I’d buy over BHP shares right now! appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Future Generation Australia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BHP Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.