I often say that ASX shares are the best place to look for passive income due to their attractive dividend yields as well as franking credits. I’d use ASX shares to build up a second income.
Some investors may be drawn to names like Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP), but I think there are options that can provide better reliability and better long-term payout growth.
By choosing growing ASX shares, we can receive pleasing payouts in the shorter-term and see very noticeable growth over the long-term. That’s why I’ve got my eyes on the following ASX shares for passive income.
L1 Long Short Fund Ltd (ASX: LSF)
This is a listed investment company (LIC), which means its job is to invest in other assets on behalf of shareholders.
One of the most appealing features of this LIC is that it invests in both ASX shares and global shares, which is a pleasing level of diversification and gives the company a very wide investment universe to hunt for opportunities.
Additionally, the ASX share is able to utilise a short-selling strategy which means it can make money when share prices go down.
It has made money from a variety of sectors including resources, industrials and communication services. It has not needed technology shares to achieve its 16% average net return per year over the five years to 31 March 2026. Past performance is not always a reliable indicator of future performance, of course.
With that powerful portfolio business, L1 Long Short Fund has been utilising a portion of it to deliver a growing dividend. The ASX share’s quarterly dividends in the first-half of FY26 were up 13.6% year-over-year compared to the HY25 dividend.
I’m expecting it to continue hiking its quarterly dividend for the foreseeable future. At the time of writing, I think its next 12 months of quarterly dividends will translate into a grossed-up dividend yield of 5.2%, including franking credits.
I think this ASX share is a great option for building a second income.
APA Group (ASX: APA)
APA is another ASX share with excellent passive income credentials. It’s an energy infrastructure giant that generates significant cash flow which funds its distributions.
Its key asset is the huge gas pipeline network which connects sources of supply to demand. As a sign of how important this business is to Australia, take in this fact: APA transports half of Australia’s gas usage. Not many Australian businesses can claim that sort of reliance in Australia.
But, that’s not the only asset in the APA portfolio. It also owns gas power stations, gas storage, gas processing, electricity transmission, solar power and wind farms.
Pleasingly, most of APA’s revenue is linked to inflation, giving the business a good sense of protection during periods of higher inflation, like now.
Its expanding portfolio of assets generates the cash flow which pays for the growing passive income.
APA has increased its annual distribution each year over the past 20 years thanks to its rising cash flow. It’s expecting to increase its FY26 annual payout to 58 cents per security. At the time of writing, that translates into a forward distribution yield of 5.8%.
The post Want to build up a second income? These 2 top ASX shares are a buy appeared first on The Motley Fool Australia.
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Motley Fool contributor Tristan Harrison has positions in 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 positions in and has recommended Apa 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.