Many investors who buy ASX shares on our stock market do so in order to receive a stream of passive income. This dividend income is one of the best and most reliable sources of passive cash flow available for most Australians, provided the dividend-producing investments that we pick are sound. That’s easier said than done, however.

Let’s get this out of the way first. There is no such thing as a ‘safe dividend’ on the ASX. No ASX share is under any kind of obligation to pay out a dividend. Even if a company tells investors to expect a certain payment, its management can change course right up until the moment the dividend is declared.

If you want a truly safe and dependable source of income, government bonds or a term deposit are your best bets for your $20,000.

Saying all of that, there are many shares on the ASX that pay reliable dividends to their investors. Barring some economic catastrophe or black swan event, there are many companies that I would have confidence in to keep paying dividends to their shareholders, rain, hail or shine.

Today, I’ll go over some of the things I look out for when searching for the safest dividends on the ASX, as well as some of the stocks I think currently offer the share market’s most reliable sources of passive income if you have $20,000 to spare.

What do the ASX’s safest dividend payers have in common?

For starters, most of the ASX’s most reliable dividend payers operate in sectors that see inelastic demand for goods or services, regardless of the economic conditions. In other words, companies that attract customers whether the economy is booming or in recession, or whether inflation is high or low.

Consumer staples stocks, infrastructure companies and telecommunications providers are good examples. We all have to eat, pay our phone bills and use electricity, water, and transport on a regular basis. The companies that provide these services at the highest standards and at the lowest prices are always going to thrive, and by extension, pay out reliable dividends.

Next, it’s prudent to look for some kind of moat, or competitive advantage, that these companies possess. This moat can help protect a company’s profits from competition and ensure that those dividends remain reliable. This moat could come in the form of a strong brand, the widest store network, or owning an asset that customers find difficult to avoid using.

Finally, use the past as a guide. Past performance is never a guarantee of future success, of course. But if a company hasn’t cut its dividend for over a decade, for example, it usually bodes well for its future income reliability

Some passive income stocks to consider

I think Coles Group Ltd (ASX: COL), Telstra Group Ltd (ASX: TLS) and Transurban Group (ASX: TCL) are three ASX dividend stocks that fit our criteria. Coles is one of the cheapest places we can obtain food and household essentials. Its vast network of stores ensures that a Coles supermarket is within easy reach of the vast majority of the Australian population. This ASX income stock has paid out a rising annual dividend each year since its 2018 ASX debut.

Telstra possess what is almost universally regarded as Australia’s best mobile network, offering coverage to rural and regional areas that competitors struggle to match. This company’s well-known brand and reputation have supported decades of dividends from Telstra.

Meanwhile, Transurban owns some of the most valuable infrastructure in the country. Motorists find it difficult to avoid using Transurban’s tolled arterial roads that span Sydney, Melbourne and Brisbane. Lucrative contracts allow the company to raise its tolls by at least the rate of inflation several times a year in many cases, which helps protect its shareholders from a dividend cut.

Of course, these aren’t the only reliable dividend payers on the ASX. But as long as you stick to high-quality companies that have reliable earnings streams and reputable histories of delivering income to shareholders, you can build a dependable stream of passive income using ASX dividend stocks.

The post Passive income: How to earn safe dividends with just $20,000 appeared first on The Motley Fool Australia.

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

The S&P/ASX 200 Index (ASX: XJO) closed 0.37% lower on Wednesday afternoon. For the year-to-date the index is 0.63% higher and it’s 4.53% above where it was this time last year.

The index hasn’t posted mind-blowing gains so far this year, and it’s currently sitting 3.4% below its all-time high in mid-October. But there are still some shares gaining good ground and with a significant potential upside in 2026.

Here are four of them, and they’re all tipped to rocket over 100% higher in 2026.

Paragon Care Ltd (ASX: PGC)

Small-cap stock Paragon, which supplies medical equipment to the health and aged care markets, has a market cap of $355.89 million. 

At the close of the ASX on Wednesday, its share price was flat at 22 cents per share. The stock is also flat on the year-to-date but is currently 55.10% below where it was trading this time last year.

The figures don’t look too appealing right now but it’s important to note that Paragon reported a strong FY25 result which showed the business is growing its core operations. It is also actively expanding with some strategic acquisitions. Most recently, the company acquired Haju Medical in Indonesia, in December.

Analysts are incredibly bullish on the stock. TradingView data shows that all four analysts have a strong buy consensus rating, with a maximum 12-month target price of 59 cents per share. That implies a huge potential 168.18% upside at the time of writing.

Xero Ltd (ASX: XRO)

On the other end of the scale there is large-cap cloud-based accounting software, Xero. The business has suffered from some investor overselling following lower-than-expected financial results last year and an unexpected acquisition news. 

But I think the reaction was way overdone. I believe the business shows incredible potential for growth this year.

As a company, Xero has previously demonstrated that it can remain resilient and grow through various stages of economic cycles. And it is also actively expanding its product line and business presence through acquisitions. 

Analysts are bullish too. TradingView data shows 11 out of 14 analysts have a buy or strong buy rating on the ASX shares. The maximum target price is a huge $228.45 a piece, which implies the shares could jump 130.99% over the next 12 months, at the time of writing. 

Telix Pharmaceuticals Ltd (ASX: TLX)

It was a tough day for the Telix share price on Wednesday. At the close of the ASX, Telix shares had fallen 7.66% to $10.61. That means that for the year-to-date the shares are now 6.6% lower. They’re now 59.95% below where they were this time last year.

The share price dip follows the company’s Q4 FY25 results where it said it had achieved its US$804 million FY25 guidance. But it did come in on the lower end of guidance. Investors clearly weren’t too pleased. It’s just one of many headwinds that Telix has faced over the past few months, including regulatory filing issues with the US Food and Drug Administration.

But the company still has exceptional growth potential amid a rapidly-growing market, and at the current share price, I think it’s a steal. 

Analysts seem to agree too. TradingView data shows all 16 analysts have a buy or strong buy rating on the stock. And the best bit is the maximum 12-month target price is $33.82. That’s 218.73% above the current trading price. Even the average target price is $26, which implies a 145.08% increase over the next 12 months, at the time of writing.

The post 3 ASX shares tipped to climb over 100% in 2026 appeared first on The Motley Fool Australia.

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Motley Fool contributor Samantha Menzies has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Telix Pharmaceuticals and Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool Australia has recommended Telix Pharmaceuticals. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Market sentiment can change far faster than fundamentals.

Over the past year, a broad selloff across technology stocks has pushed several high-quality ASX growth stocks to 52-week lows, despite little evidence that their long-term opportunities have deteriorated.

In some cases, share prices are down around 50% from their highs, creating what look like coiled springs just waiting for sentiment to turn.

Two ASX growth stocks that stand out in that respect are named below:

WiseTech Global Ltd (ASX: WTC)

WiseTech Global looks like a classic example of a market overreaction.

The company provides mission-critical software that sits at the heart of global freight forwarding and logistics operations. Its platform is deeply embedded in customer workflows, handling complex regulatory, operational, and data requirements across borders.

That complexity is a key part of the investment case. Unlike simpler software tools, WiseTech’s systems are not easily replaced or replicated. This is why concerns around generative AI lowering barriers to entry have had little impact on perceptions of WiseTech’s competitive position. The software is not about simple automation, but about orchestrating highly complex global supply chains.

After hitting a 52-week low and falling sharply from its highs, WiseTech shares appear to be pricing in a slowdown that does not fully reflect the business’s long-term growth runway. If sentiment toward technology improves, WiseTech’s earnings leverage and recurring revenue profile could see this ASX growth stock rebound strongly.

Morgans has a buy rating and $112.50 price target on its shares. This suggests that its shares could rise 80% from current levels.

Xero Ltd (ASX: XRO)

Xero has also been caught in the tech sector downdraft.

The company’s cloud accounting platform is core infrastructure for millions of small businesses and accounting firms globally. Once adopted, it becomes deeply embedded in daily operations, supporting strong retention and recurring subscription revenue.

However, Xero is one of several software stocks that have been hit hard by concerns about generative AI potentially lowering barriers to entry in the future. The market has questioned whether new tools could commoditise parts of the accounting software landscape.

What this overlooks is Xero’s scale, ecosystem, and integration depth. Accounting software is not just about data entry. It is about compliance, reporting, workflows, and trust. These are areas where incumbents with established platforms and partner networks still hold significant advantages.

With Xero shares now trading near 52-week lows and well below previous highs, even modest improvements in tech sentiment or clarity around AI’s role could act as a catalyst for a sharp re-rating.

Macquarie has an outperform rating and $230.30 price target on this ASX growth stock. This implies potential upside of 130% from current levels.

The post 2 ASX growth stocks set to skyrocket in the next 12 months appeared first on The Motley Fool Australia.

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• 3 ASX shares tipped to climb over 100% in 2026
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Motley Fool contributor James Mickleboro has positions in WiseTech Global and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group, WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended Macquarie Group, WiseTech Global, and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

National Australia Bank Ltd (ASX: NAB) remains a solid, well-established ASX bank. It is profitable, well capitalised, and continues to pay dividends that appeal to income investors.

However, heading into late January, I view NAB as fairly valued. That means future returns are likely to be driven more by dividends and modest earnings growth rather than any meaningful re-rating.

With that in mind, here are three ASX exchange-traded funds (ETFs) that I think could outperform NAB on a total return basis in 2026.

iShares S&P 500 ETF (ASX: IVV)

The iShares S&P 500 ETF offers exposure to the world’s largest and most influential stocks.

The ETF tracks the S&P 500, which is where you will find the 500 largest stocks on Wall Street in New York.

While the IVV ETF does not offer the same income profile as NAB, it provides a very different growth engine. I think if US corporate earnings continue to expand, this fund has the potential to deliver stronger capital growth than a mature Australian bank in 2026.

For investors looking beyond domestic financials, the iShares S&P 500 ETF is a simple way to access some of the best stocks in the world.

VanEck Video Gaming and Esports ETF (ASX: ESPO)

The VanEck Video Gaming and Esports ETF is another ETF I think has potential to outperform NAB shares in 2026.

It provides exposure to the global video gaming and esports industry. 

This is a great area for investors to be focused on. Gaming has grown into a major form of digital entertainment, spanning console, mobile, and online platforms. The industry benefits from recurring revenue models, global audiences, and continued technological improvement.

Unlike NAB, which is closely tied to domestic credit growth, the ESPO ETF’s underlying holdings are exposed to an industry that is predicted to increase materially over the remainder of the 2020s.

This ETF carries much higher risk than a bank stock, but it also offers exposure to a long-term structural trend. 

BetaShares Global Cybersecurity ETF (ASX: HACK)

The BetaShares Global Cybersecurity ETF provides exposure to a structural growth theme that is largely independent of economic cycles.

Governments, consumers, businesses, and institutions continue to invest in protecting data and infrastructure, regardless of broader conditions.

The ETF holds a diversified portfolio of global cybersecurity companies involved in areas such as cloud security, identity protection, and threat detection. As digital systems expand and become more interconnected, the relevance of these services continues to grow. 

Compared to a mature bank like NAB, the HACK ETF offers a higher-risk but potentially higher-reward profile. For investors comfortable with that, this trade-off could be worthwhile in 2026.

Why ETFs can have an edge over NAB shares

When a bank is fairly valued, returns tend to be steady but unspectacular. Dividends do much of the work, and capital growth is often limited.

ETFs that provide exposure to global markets or structural growth themes can offer a different return profile. While they may be more volatile in the short term, they also have the potential to outperform if growth trends play out.

Each carries different risks, but I think all three could plausibly outperform a fairly valued bank stock over the year ahead.

The post 3 ETFs I think could outperform NAB shares in 2026 appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended BetaShares Global Cybersecurity ETF and iShares S&P 500 ETF. The Motley Fool Australia has recommended iShares S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Out of the major ASX blue-chip shares, Telstra Group Ltd (ASX: TLS) shares could be one of the best pick for passive income.

Telstra owns Australia’s leading telecommunications network, and benefits from ongoing user growth and subscription price increases.

One of the most appealing things about Telstra as an ASX dividend share is its dividend payout ratio is close to 100% of its earnings. That unlocks a good dividend yield.

It’s advantageous to have a diversified portfolio of businesses for a dividend-focused investor. But, if someone were aiming for $1,000 of annual passive income, it’d be good to know how many Telstra shares you’d need.

$1,000 passive income goal

Investing in ASX companies usually comes with the benefit of franking credits, so I’m going to include that in the calculation of how many Telstra shares I’d need.

If someone invested in the ASX telco share today, it’d be too late to receive the FY25 dividend payout. The next dividends someone would be eligible to receive are the FY26 payments.

I think it’s highly likely that the business will be able to grow its dividend in the 2026 financial year.

The forecast on Commsec suggests the business could pay an annual dividend per share of 20 cents, representing a year-over-year increase of 5.25%, or 1 cent per share, if that’s what happens.

Including the franking credits, this would mean investors would need 3,500 Telstra shares to generate $1,000 of annual passive income.

At the time of writing, that would require an investment of $16,590.

Is the dividend expected to continue increasing?

The further into the future we look, the more challenging it is to forecast what’ll happen next. Just look at how much unpredictability US President Trump has added to the picture over the last 12 months.

Telstra’s profit is a bit more consistent than the share market, thanks to its defensive utilities offering, so its future is easier to forecast.

The projection on Commsec suggests the dividend could increase by another 1 cent per share – a 5% year-over-year rise – in FY27 to 21 cents per share.

Therefore, at the current Telstra share price, it offers a potential grossed-up dividend yield of 6% (including franking credits) in FY26 and 6.3% in FY27.

A defensive business offering a dividend yield of more than 5% and growing at 5% per year seems like a very promising investment idea to me for passive income.

The post How many Telstra shares do I need to buy for $1,000 of annual passive income? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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 Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

WiseTech Global Ltd (ASX: WTC) shares have been under intense pressure over the past year. On Wednesday, the stock fell to a 52-week low of $61.48 before retracing slightly to finish at $62.02.

That is a long way from its 52-week high of $130.50, and it leaves investors facing a familiar but uncomfortable question. Has the market finally gone too far to the downside, or is there more pain still to come?

In my view, this pullback could represent a once-in-a-decade opportunity for long-term investors willing to look beyond near-term uncertainty.

A high-quality business trading at a much lower price

WiseTech remains a dominant global player in logistics software, with its CargoWise platform deeply embedded in the operations of freight forwarders and supply chain operators worldwide. The business benefits from very high levels of annual recurring revenue and extremely low customer churn, which underpins predictable cash flows even during periods of disruption.

While governance concerns and execution issues have weighed heavily on sentiment, the underlying business has not disappeared. Instead, the market has applied a significant discount while waiting for confidence to return.

Earnings growth still matters

Consensus forecasts point to earnings per share of 76.5 cents in FY26, rising to 108.1 cents in FY27. That implies strong profitability over the next two years if management delivers on its plans.

At the current share price, WiseTech is trading on 81 times estimated FY26 earnings and 57 times estimated FY27 earnings. This is well below the valuation levels investors have historically been willing to pay for that growth profile.

Valuation looks reasonable

WiseTech has never been a cheap stock in traditional terms. Over the past nine years, its average price-to-earnings ratios have ranged from 52.79 to as high as 160.87. Even in more recent years, multiples have commonly sat between 80 and 100 times earnings.

Against that backdrop, today’s valuation looks compressed to me. While a lower multiple may be justified given recent challenges, the current pricing suggests the market is assuming a permanently impaired business rather than a temporarily disrupted one.

If WiseTech simply returns to delivering consistent earnings growth, it would not need to regain its historical peak multiples for shareholders to do well from here.

Why this could be a rare opportunity

This is not a risk-free situation. Execution still matters, and trust will take time to rebuild. However, the combination of a high-quality global business, strong long-term growth drivers, and a share price that has already fallen a long way creates an unusually asymmetric setup.

For long-term investors who can tolerate volatility, this looks like one of those rare periods where a premium business is available at a price that assumes very little goes right.

That does not guarantee success, but it does suggest that the risk-reward balance may be far more attractive than it has been at almost any point in WiseTech’s listed history.

The post A once-in-a-decade chance to buy WiseTech Global shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended WiseTech Global. The Motley Fool Australia has positions in and has recommended WiseTech Global. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

ASX All Ords share IPD Group Ltd (ASX: IPG) has amply rewarded investors who bought the stock at multi-year lows in June.

On Wednesday, shares in the electrical equipment and industrial digital technologies provider closed up 0.2% at $4.54 apiece. For some context, the All Ordinaries Index (ASX: XAO) closed down 0.5% on Wednesday.

This now sees the IPD share price up a healthy 22.0% over the past 12 months.

But if you’d followed Warren Buffett’s advice to be greedy when others are fearful and bought the ASX All Ords share at its multi-year lows on 23 June, you could have picked it up for just $2.80.

That would see you sitting on a gain of 62.1% as of Wednesday’s close.

While those gains have come and gone, the analysts at Taylor Collison expect more outperformance from IPD shares in the year ahead.

Here’s why.

Should you buy the ASX All Ords share today?

IPD shares grabbed plenty of investor attention, and closed up 4.3%, on 30 December after the company announced it was acquiring Platinum Cables. Platinum Cables provides cable solutions for the Australian mining and resources sector.

As we reported on the day, the ASX All Ords share will pay $37.5 million to acquire Platinum Cables. IPD said this equates to 5.2 times Platinum Cables’ FY 2025 earnings before interest and tax (EBIT).

“The acquisition of Platinum Cables is a continuation of our growth strategy that reinforces our leadership in the mining sector and delivers immediate earnings accretion for shareholders,” IPD CEO Michael Sainsbury said on the day.

And the team at Taylor Collison agree.

According to the broker:

We really like this deal. We think IPD are paying a fair price for a growing, niche operation with a reputation and record that insulates it from the price-based competition. Platinum extends the product portfolio, diversifies end markets, and offers a leg-up into emerging growth segments.

Taylor Collison also highlighted the ongoing revenue potential from repair and maintenance.

“Platinum’s cables must withstand harsh environments, are essential to production and require replacement due to wear and tear,” the broker said. “Maintenance and repair can approach two-thirds of revenue in years without major project supply.”

And Taylor Collison expects the ASX All Ords share will benefit from plenty of sales synergies.

The broker noted:

Platinum’s cables connect to plugs, switchgear, VSDs and control systems in IPD’s catalogue. Engineering capabilities can potentially engage IPD earlier in the specification phase for projects, increasing the potential for other IPD products to be specified into tenders.

With this picture in mind, Taylor Collison increased it FY 2026 earnings per share (EPS) estimate for IPD by 6%, while lifting its FY 2027 EPS estimate by 12.5%.

“We are also modelling accelerating sales growth in FY 2028 as sales synergies start to translate into project wins,” the broker said.

Connecting the dots, Taylor Collison maintained its buy rating on the ASX All Ords share with an increased price target of $5.40.

That represents a potential upside of 18.9% from Wednesday’s closing price.

The post Up 63% since June, why this ASX All Ords share is tipped to keep outperforming in 2026 appeared first on The Motley Fool Australia.

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

As we head into 2026, and with the reporting season just around the corner, the key questions is, has the market run out of puff, or are there still gains to be made?

The team at Wilsons Advisory has run the figures, and the good news is that they believe the market will push higher, particularly in certain sectors.

Miners dominated in 2025

Firstly, looking back on last year, the S&P/ASX 200 Index (ASX: XJO) delivered a “solid” total return of 10%, with the strongest contributor being the materials sector, up 36% “as sentiment towards the commodity complex improved in the second half of the year”.

As the Wilsons team said in its note to clients:

The biggest contributor to the strength of the materials sector was the gold miners, as the precious metal surged +65% during the year amidst a prevalence of macro and geopolitical risks. There was also impressive strength among miners exposed to base metals, such as Copper and Aluminium, driven by tightening supply/demand dynamics, as well as critical minerals such as Rare Earths and Lithium, as their prices staged a recovery from their respective slumps.

Other sectors which performed well included industrials, up 14%, utilities up 13% and financials up 12%.

Notably, within financials, after demonstrating market leadership throughout 2024 and for much of 2025, the bank sector began to give back its outperformance towards the end of the year. This was driven by the partial unwinding of CommBank’s extreme valuation premium as the bank failed to deliver against high market expectations of continuing earnings upgrades.

Rates outlook cause for concern

Looking forward to this year, the Wilsons team said the outlook is “somewhat constrained” by the risk of official interest rate increases, and high valuations.

That said, the market now offers a relatively supportive earnings growth backdrop, with consensus pointing to 10% earnings per share growth for the calendar year, which would represent the strongest rate of earnings growth in four years.

Wilsons’ key recommendations are to stay overweight in resources, stay underweight in banks, to retain exposure to “AI winners”, to remain underweight in retail, and overweight in supermarkets.

On the resources front, “We see scope for a continued metal pricing upgrade cycle and a sustained rotation into the resources sector in 2026, supported by several key factors”.

These included a healthy global economy, a weakening US dollar, structural demand tailwinds driven by factors including the energy transition and re-armament, and supply tightness.

On the banks, the Wilsons team believes, “valuations remain prohibitively expensive for a sector offering below market, low- to mid-single-digit consensus earnings per share growth”.

AI growth to continue 

In the AI sector Wilsons says the AI revolution is, “a genuine megatrend that is closer to early than late cycle and is supported by continued upgrades in hyperscaler capex forecasts”.

The first wave of AI winners comprises the ‘picks and shovels’ businesses that provide the digital infrastructure required for AI deployment, and are therefore directly leveraged to the ongoing investment cycle.

They singled out NextDC Ltd (ASX: NXT) and Goodman Group Ltd (ASX: GMG) as data centre companies to watch.  

Meanwhile in retail, the rates outlook, “‘presents an incrementally more challenging environment for the cyclical retail sector in 2026”.

While an ‘on-hold’ RBA (Reserve Bank of Australia) remains a plausible outcome for 2026, the balance of risks over the next six months appears skewed towards a rate rise rather than a cut. This environment presents risks to retailer earnings and valuations, with our analysis showing that the sector typically underperforms in the lead-up to rate hikes as the market anticipates softer macro conditions for consumers.

The post As reporting season looms, where will the market head next and what should you be buying? appeared first on The Motley Fool Australia.

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Motley Fool contributor Cameron England has positions in Nextdc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goodman Group. The Motley Fool Australia has recommended Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Dividends are often thought of as money you take and spend.

But for long-term investors, dividends can be far more powerful when they are treated as a tool for compounding rather than income.

Used the right way, ASX dividends can quietly accelerate portfolio growth and play a major role in building wealth over time.

Here is how I would approach turning ASX dividends into long-term wealth.

Start with dividends that are sustainable

The most important thing to look for in dividend investing is not yield, but sustainability.

High dividend yields can look attractive on paper, but they are often a warning sign if they are not backed by strong earnings and cash flow. Businesses that consistently generate surplus cash, maintain sensible payout ratios, and reinvest wisely are far more likely to keep paying dividends through different market conditions.

Australian shares with resilient business models and long operating histories tend to form a strong foundation for dividend-led investing, even if their yields are not the highest in the market. This could mean shares such as Woolworths Group Ltd (ASX: WOW), Universal Store Holdings Ltd (ASX: UNI), and Dicker Data Ltd (ASX: DDR).

Reinvest dividends early on

The real power of dividends shows up when they are reinvested.

When dividends are used to buy more shares, those extra shares generate their own dividends, which can then be reinvested again. Over time, this compounding effect can become significant, even if the initial income feels modest.

In the early and middle stages of investing, reinvesting dividends is often more effective than taking the cash. It allows the portfolio to grow without needing additional savings and removes the temptation to time new investments.

Focus on dividend growth

Some of the best dividend outcomes come from companies that start with modest payouts but grow them over time.

As earnings rise, dividends can increase, lifting the income generated by the portfolio each year. This is particularly valuable over long periods, as it helps income keep pace with inflation and supports total returns.

Companies such as CAR Group Limited (ASX: CAR) or Lovisa Holdings Ltd (ASX: LOV) show how steady earnings growth can underpin rising shareholder returns without needing aggressive payout ratios.

Use dividends to strengthen the portfolio

Dividends do not always need to be reinvested into the same stock.

As a portfolio grows, dividend income can be redirected toward areas offering better value or diversification at the time. This allows investors to rebalance gradually without selling existing holdings or adding fresh capital.

Over long periods, this approach can improve portfolio resilience and reduce the impact of market cycles, while still benefiting from compounding.

Foolish takeaway

Dividends are not just about income today.

When reinvested consistently and supported by sustainable businesses, ASX dividends can become a powerful engine for long-term wealth creation. By focusing on quality, reinvesting early, and giving compounding time to work, investors can turn regular dividend payments into meaningful long-term outcomes.

The post How to turn ASX dividends into long-term wealth appeared first on The Motley Fool Australia.

More reading

• Here are the 3 ASX ETFs I use for my super fund
• 3 of the best ASX dividend stocks to buy now
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• Are Woolworths shares a blue-chip buy?
• How to build an ASX share portfolio for income and growth

Motley Fool contributor James Mickleboro has positions in Lovisa, Universal Store, and Woolworths Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa. The Motley Fool Australia has positions in and has recommended Dicker Data and Woolworths Group. The Motley Fool Australia has recommended CAR Group Ltd, Lovisa, and Universal Store. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

If I were lucky enough to have $10,000 to put to work today, below are three ASX shares I would seriously consider. 

They may not suit everyone. But each offers a different way to gain exposure to quality businesses with clear drivers that I think are worth backing from here.

BHP Group Ltd (ASX: BHP)

BHP is one of the world’s largest diversified miners, with exposure to iron ore, copper, metallurgical coal, and other commodities that remain critical to global economic activity. While commodity prices can fluctuate, I think BHP’s scale, asset quality, and balance sheet strength give it a level of resilience that few miners can match.

Another thing I like about BHP is its capital discipline. The company has been clear about prioritising balance sheet strength and shareholder returns rather than chasing growth at any cost. That makes its dividend stream more attractive than that of many other cyclical businesses, even though payouts can vary with commodity prices.

For me, BHP offers a way to gain exposure to global demand and long-term themes such as electrification and infrastructure spending, while still owning a business that can generate significant cash flow today.

Xero Ltd (ASX: XRO)

Xero sits at the opposite end of the spectrum to BHP, and that is exactly why I find it appealing.

This is a business built around recurring revenue, high customer retention, and a product that is deeply embedded in the day-to-day operations of small businesses and accountants. Once a customer adopts Xero’s platform, it is hard to switch to a rival platform.

What interests me most about Xero is its growth potential. The company has been investing heavily in product development and international expansion, particularly in markets like the United States. If that investment continues to translate into operating leverage over time, earnings growth could accelerate.

And with Xero shares down materially from their highs amid tech sector weakness, I think they are the best value they have been in a long time and their current valuation does not reflect the company’s quality and growth potential.

Flight Centre Travel Group Ltd (ASX: FLT)

Flight Centre is a stock that I think is often misunderstood.

Many investors still view it purely as a cyclical travel business that rises and falls with consumer confidence. While that is partly true, I think it underestimates how diversified Flight Centre has become, particularly in corporate and business travel.

The company has spent recent years restructuring its operations, investing in technology, and focusing on margins rather than just volume. As travel demand normalises, I think that leaner cost base gives it the potential to deliver stronger profitability than in past cycles.

Flight Centre also offers something different from many growth stocks. It has the ability to generate meaningful cash flow and, over time, return capital to shareholders. That combination of recovery potential and income appeal is why it earns a place on my buy list today.

Foolish takeaway

There are plenty of quality shares on the ASX, and no single portfolio will ever be perfect. 

But if I had $10,000 to invest today, I think these three offer an appealing mix of resilience, growth potential, and long-term relevance. 

They would not be buys for a quick win, but businesses I would feel comfortable owning and holding as the next phase of the market unfolds.

The post Why I would buy BHP, Xero, and Flight Centre shares today appeared first on The Motley Fool Australia.

More reading

• 3 ASX shares tipped to climb over 100% in 2026
• 2 ASX growth stocks set to skyrocket in the next 12 months
• 5 things to watch on the ASX 200 on Thursday
• 4 reasons why I think BHP shares are a must-buy for 2026
• Top brokers name 3 ASX shares to buy today

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