ASX dividend shares that can achieve long-term capital growth while growing their payouts can be attractive investments.
Dividend stocks should offer more than just a solid dividend yield. They also need to provide a mixture of long-term stability and payout growth, in my opinion.
Over the last few years, we've seen how inflation can rise, reducing the value of a dollar. This shows why long-term dividend growth is an important aspect of a good dividend stock, helping to offset that financial headwind for our personal cash flow.
With that in mind, here are three dividend payers that I think are compelling passive income earners.
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Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
This investment company has been publicly listed for around 120 years.
Soul Patts invests in various industries and assets, including telecommunications, resources, swimming schools, agriculture, financial services, credit, property and more. Its portfolio offers pleasing diversification.
The ASX dividend share is growing its profit and underlying value thanks to its underlying assets growing themselves. Soul Patts also occasionally makes new investments.
The rising cash flow from Soul Patts' portfolio is helping pay for a growing dividend payout. Soul Patts' dividend has grown every year since 2000, and it currently offers a grossed-up dividend yield of 3.8%.
Rural Funds Group (ASX: RFF)
Rural Funds is a farmland real estate investment trust (REIT) that owns a diversified portfolio of almonds, macadamias, vineyards, cattle, and cropping properties. Those properties are leased to large, dependable tenants, including Select Harvests Ltd (ASX: SHV), Olam, and JBS.
The REIT is currently paying an annual distribution of 11.73 cents per unit. It has stayed at this level for the last couple of years amid much higher interest rates, which have increased debt costs and impacted rental profit. The Rural Funds cash distribution grew every year between 2014 and 2022.
However, the ASX dividend share's rental income continues to grow thanks to its in-built annual rent indexation, which is either fixed or linked to CPI inflation. I think this growth, plus the completion of capital expenditures at some of its farms, will help restart passive income growth again.
Step One Clothing Ltd (ASX: STP)
Step One is a direct-to-consumer online retailer of underwear. The company says its products are high-quality, organically grown and certified, sustainable, and ethically manufactured.
One of the most exciting elements of this business is that it's expanding globally. When a company has the potential to grow its profit significantly, the dividend can grow a lot, too.
The FY24 result was a great demonstration of the company's potential. While total revenue increased 29.7% to $50.9 million, UK revenue rose 33.2% to $27.1 million and US revenue soared 261.5% to $84.5 million. Net profit after tax (NPAT) rose 43.9% to $12.4 million.
Step One's annual dividend increased by 36% in FY24 to 6.8 cents per share, which translates into a grossed-up dividend yield of close to 6%.
