One ASX dividend machine I'd buy over Fortescue shares right now

When it comes to dividends, growth can be better than a high yield.

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Earlier this week, we looked at the impressive dividend yield that ASX 200 iron ore giant Fortescue Ltd (ASX: FMG) shares are currently boasting.

Fortescue's ASX dividend yield is presently trading well north of 9% – 9.66%, to be exact, as of the current stock price.

Now, that's obviously a great dividend yield to have in one's ASX share portfolio. But, as we also noted earlier this week, that dividend is fundamentally unreliable, given Fortescue's nature as a seller of a raw commodity over which it has no pricing power.

Fortescue is not a bad company. I myself would probably own it if maximising passive dividend income was the primary goal of my investing strategy. But there's another ASX dividend machine that I prefer to own today instead.

That dividend machine is a listed investment company (LIC) by the name of MFF Capital Investments Ltd (ASX: MFF).

An LIC is a company that usually invests in a portfolio of other underlying assets, which it manages on behalf of its shareholders. MFF is no different, with this LIC specialising in holding US stocks. Those US stocks are selected by MFF's chief investment officer Chris Mackay, who was a co-founder of Magellan Financial Group Ltd (ASX: MFG).

Mackay is a dyed-in-the-wool disciple of Warren Buffett and attempts to emulate Buffett's style of investing, which involves buying the highest-quality companies on the market at attractive prices and holding them for long periods of time (preferably forever).

Some of MFF's longstanding portfolio staples include Amazon, Visa, Mastercard, Google-owner Alphabet, American Express and Bank of America.

Mackay's approach has worked very well for MFF in recent years, with the company's shares up around 60% since July of 2022.

But let's talk about dividends.

MFF: An ASX dividend machine

MFF has prioritised raising its ASX dividend over the past few years and has raised its annual shareholder payouts every year since 2018.

Back then, MFF shares yielded an annual ASX dividend of 3 cents per share. But by 2023, this had risen to 9.5 cents. This year's interim dividend of 6 cents per share, paid out in May, was a big increase over the 2023 interim dividend of 4.5 cents per share.

Further, the company recently revealed that it intends to pay out a final dividend of 7 cents per share later this year. That would take its 2024 total to 13 cents per share. If this turns out to be the case, it would mean that MFF's annual dividend would have risen 333% between 2018 and 2024.

That's why I view this company as a dividend income machine and why it, and not Fortescue, occupies a large portion of my overall ASX share portfolio.

At the current MFF Captial share price of $3.70, this LIC offers a trailing ASX dividend yield of 2.57%, which also comes with full franking credits attached. If the company does indeed pay out 7 cents per share later this year, it would have a forward dividend yield of 3.51%.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen has positions in Alphabet, Amazon, American Express, Mastercard, Mff Capital Investments, and Visa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Bank of America, Mastercard, and Visa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool Australia has recommended Alphabet, Amazon, and Mastercard. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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