Last week I invested in two ASX dividend shares for passive income. I think these names can be good dividend payers for my portfolio.
I like investments that could provide a combination of dividends and capital growth. Some of my portfolio is focused on listed investment companies (LICs). I like the diversification each one can provide while having the control to provide more predictability with dividends than an exchange-traded fund (ETF) because of the company structure.
With LICs, there's also a potential to buy at a discount to the net tangible assets (NTA). In other words, I can buy a $1 basket of shares for less than $1.
Hearts and Minds Investments Ltd (ASX: HM1)
Hearts and Minds is an LIC that owns between 25 to 35 Australian and globally listed shares based on the highest conviction ideas from fund managers. Some of the picks are from a permanent group of fund managers (core managers), while other picks are chosen at the annual investment conference by a group of fund managers. It results in a fairly eclectic, diversified portfolio.
The portfolio was quite tech-focused during 2022, so it suffered amid the inflation and rising interest rate environment. However, the portfolio construction method has been altered so there won't be as much industry concentration from now on.
Some of the current names in the ASX dividend share's portfolio include BHP Group Ltd (ASX: BHP), Champion Iron Ltd (ASX: CIA), ASML, Formula One Group, Mastercard, and Microsoft.
The LIC doesn't charge any investment fees and instead donates to leading Australian medical research institutes like Black Dog Institute, Cerebral Palsy Alliance, and Charlie Teo Foundation.
It has a trailing grossed-up dividend yield of 8.1% and the current Hearts and Minds share price is at a 17% discount to the pre-tax NTA on 7 April 2023 (being the latest published weekly update at the time of writing). Those are appealing statistics to me.
L1 Long Short Fund Ltd (ASX: LSF)
This LIC is managed by L1, which looks to use a combination of short selling and 'long' investing in a mixture of ASX shares and international shares. At the end of March 2023, it had a total of 80 positions, with 56 of those being 'long' and 24 being 'short'.
Past performance is definitely not a guarantee of future performance but I have been impressed that over the past two years, the portfolio's net return has been an average of 16.4% per annum. This has enabled the ASX dividend share to pay growing dividends, while also achieving good NTA growth and share price growth. Just achieving 10% net returns per annum from here would be a good performance.
In the FY23 half-year result, it grew its interim dividend by 25% to 5 cents per share. The trailing grossed-up dividend yield is now 4.75%.
However, it wouldn't surprise me if the next passive income payment is 5.5 cents per share because the last two dividends have been increased by 0.5 cents from the last dividend. If that happens, the grossed-up dividend yield would become 5.25%.
The last published NTA before tax was $3.04 for 11 April 2023, which implies the current L1 Long Short Fund share price is at a 6.25% discount to this.
