Forget BHP shares! Buy these ASX dividend shares instead for passive income

BHP Group Ltd (ASX: BHP) shares are one of the most famous Australian businesses as a passive income provider. But, it’s not one of the first ASX dividend shares I’d buy.

Resource prices and share prices are regularly changing and BHP trading at a share price of more than $60 looks like this cyclical name is trading at a very high point.

It’s certainly true that iron ore and copper may be priced higher than analysts were previously expecting. That means BHP’s ability to generate larger profits has increased, for the time being at least. But, it could be better to wait for when the market is less bullish about commodities and focus on other ASX dividend shares instead, like the ones below.

Rural Funds Group (ASX: RFF)

Mining is a significant part of the regional Australian economy, but so is farming. Rural Funds owns a portfolio of farms across a number of areas including almonds, cattle, macadamias, vineyards and cropping.

Rural Funds enables investors to gain exposure to the growing demand for food as a landlord, without necessarily being at risk of the operational volatility of farming that comes with food prices, growing conditions or weather.

It generates rental income from a portfolio of high-quality tenants which are signed for, on average, well over a decade. This means the business has very defensive earnings, in my opinion.

The rental income is steadily growing, organically, thanks to contracted rental increases that are either linked to inflation or there are fixed annual increases, combined with market reviews.

It’s currently paying an annual distribution per unit of 11.73 cents, which translates into a distribution yield of 5.9%. It has never given investors a payout cut, despite the headwinds of higher interest rates.

L1 Long Short Fund Ltd (ASX: LSF)

The other ASX dividend share I want to highlight is this listed investment company (LIC), which invests with both short-selling strategies and normal long-term investing.

One of the main things about this LIC that I like, aside from the strong returns, is the types of sectors it invests in to generate its returns. It doesn’t rely on high-growth, high-volatility tech shares. L1 Long Short Fund’s three most fruitful industries for returns have been materials, industrials and communication services.

Therefore, it offers a great level of diversification to investors because the global share market is dominated by tech companies and the local market is weighted towards financial companies.

Impressively, over the seven years to 30 April 2026, its portfolio delivered an average per return per year of 19.6%. I’m not expecting the next seven years to be as good, but I think its investment strategy could produce double-digit returns over the long-term.

It has increased its annual dividend each year since it started paying a dividend in 2021. I expect the next year of dividends to come to a grossed-up dividend yield of 5%, including franking credits.

The post Forget BHP shares! Buy these ASX dividend shares instead for passive income appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• Why BHP shares just got a big buy call
• Top 10 ASX shares bought and sold by investors in May
• 3 ASX mining shares to buy: experts
• Buy, hold, sell: BHP, PLS Group, CBA shares

Motley Fool contributor Tristan Harrison has positions in L1 Long Short Fund and Rural Funds Group. 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 positions in and has recommended Rural Funds Group. 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.