Quality ASX passive income shares could be the right investment during this uncertain time. Dividend-paying businesses could produce $700 per month of passive income.
I think it’s important that investors consider how resilient dividends could be from their ASX dividend share. If I’m relying on dividend income for my personal finances, I’d want to be confident that dividend cash will keep flowing to my bank account, even in a downturn.
With that in mind, I’ll highlight two appealing ASX passive income shares that I’d buy today (and already own because of how much I like them).
Future Generation Australia Ltd (ASX: FGX)
The listed investment company (LIC) structure is very effective at delivering regular dividends. LICs make money by investing in other shares and generating investment profits. They can ‘bank’ investment returns in good years to help pay dividends in leaner years.
Future Generation Australia has impressively grown its dividend every year since it started delivering payments to shareholders in 2015. That’s more than a decade of continuous dividend increases.
In the 2026 financial year – which ends in December 2026 – the annual dividend is guided to rise by 5.6% to 7.6 cents per share. That’s an inflation-beating rise for a dividend yield that’s already large.
The guided annual dividend translates into a forward grossed-up dividend yield, including franking credits, of 8.1% at the time of writing. That’s a big yield from the ASX passive income share.
How does the LIC actually invest? It’s invested in the funds of more than a dozen fund managers, so there’s significant diversification with numerous different shares as those managers invest with different styles.
Pleasingly, each of those fund managers works pro bono – for free – so that Future Generation can donate 1% of its net assets to youth charities. In other words, there are no management fees or performance fees involved. That’s great for the net investment return and it’s a wonderful cause.
L1 Long Short Fund Ltd (ASX: LSF)
The other ASX passive income share I want to highlight is also an LIC. The fund manager L1 Group is actually one of the fund managers that supports Future Generation Australia.
L1 Long Short Fund invests in both ASX shares and international shares, using both normal investing and short-selling to generate returns.
I like how the investment team are willing to invest with a contrarian and opportunistic mindset. Avoiding thinking like the crowd can be where the good returns are, particularly when it comes to cyclical sectors.
It noted in August how it’s investing, which I think describes well the sorts of opportunities it’s looking at:
We continue to focus on company-specific opportunities where valuation and earnings delivery can drive returns across a range of market environments. We believe the portfolio looks well placed at present, with the median long position trading on 10x P/E, supported by double-digit EPS growth and modest debt levels.
In October, the investment team wrote:
The S&P/ASX 200 Index (ASX: XJO) has been relatively flat over the past year, given a difficult Australian macro backdrop. We believe this backdrop is well suited to active stock pickers (like L1), where strong specific companies can outperform a relatively flat broader stock market. The increased global stock volatility from higher oil prices, higher bond yields and constant AI sentiment changes is providing us with a better than usual opportunity set of mispriced stocks.
Past performance is not a guarantee of future returns, but the portfolio has returned an average of 15% per year over the past five years.
Some of those returns have been used to pay a growing dividend. Since it started paying dividends in 2021, it has increased the payout every financial year.
I expect the next 12 months of dividends could come to 16.2 cents per share, which is a grossed-up dividend yield of 5.3%, including franking credits.
$700 per month of passive income
These two ASX passive income shares don’t pay monthly, so I think it’d be better to think of the goal as an annual target of $8,400.
Between the two businesses I highlighted, the average dividend yield is 6.7% (including franking credits).
With a 6.7% yield, it’d take a portfolio value of $125,374 across the two stocks to generate $8,400 (of annual income), or $700 per month on average. Along with a few other dividend names, I think the above options are great for passive income.
The post 2 ASX passive income share ideas I'd use to generate $700 a month in 2027 appeared first on The Motley Fool Australia.
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Motley Fool contributor Tristan Harrison has positions in Future Generation Australia, L1 Group, and L1 Long Short Fund. 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.