Income-seeking investors should focus on ASX dividend stocks that can provide reliable payments. A name like L1 Long Short Fund Ltd (ASX: LSF) is one of my preferred ideas for dividend income.
Dividends are one of the best things about the ASX share market, in my opinion. It's pleasing to receive cash payments into our bank account just for owning the investment.
Some dividends are more reliable than others, which is essential to understand if we're relying on the dividend income. I don't want the cash flow that pays for my life to disappear when I need it most.
I like ASX mining shares such as BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) for their copper exposure, but their dividends can bounce around because commodity prices can change so much. Therefore, I don't think we can rely on a particularly high dividend coming every year.
L1 Long Short Fund is the type of ASX dividend stock that ticks the boxes, in my eyes.
Reliable ASX dividend stock
Dividends aren't guaranteed, but L1's board of directors (the decision makers of the dividend payout) stated with its FY26 result that it expects "total dividends to continue increasing going forward".
It started paying a dividend in 2021 and it has increased its annual dividend every year since then. The ASX dividend stock recently started paying dividends quarterly and it's increasing its payout every quarter.
I expect the FY27 annual dividend to be at least 16.2 cents per share which would equate to a year-over-year increase of 11%, following a 14.5% increase in FY26.
Solid dividend yield
The passive income on offer is not the largest dividend yield ever, but it's a solid starting point and looks likely to rise for the foreseeable future.
Based on my expectations for the FY27 annual dividend, the grossed-up dividend yield could be 5.3%, including franking credits, at the time of writing. Without the franking credits, the ASX dividend stock's yield could be 3.7%.
Between FY24 and FY27, I'm expecting the business to register dividend growth of 38%, thanks to the power of its investment returns and the nature of compounding.
Great investment returns
Past performance is not a reliable indicator of future returns, but the listed investment company (LIC) has performed very well.
LICs can turn investment profits into consistent dividends, which I think is one of the powerful aspects of the LIC structure.
Over the past three years, the portfolio has returned an average of 21.5% per year (net). Over a five-year horizon, it has delivered an average return of 15% per year (net).
It has managed to achieve that by investing in a mixture of ASX shares and international shares that have a low price/earnings (P/E) ratio, solid earnings per share (EPS) growth and modest debt levels. It's also willing to use short-selling, which allows it to profit when specific shares go down.
Some of its picks in FY26 that produced returns were resources, construction materials, infrastructure and travel. It's currently invested in areas like gold, construction materials, infrastructure and uranium as key exposures.
With $4,000, an investor could buy 913 shares in L1 Long Short Fund. I think this ASX dividend stock offers plenty of positives, which is why I hold it in my portfolio alongside a few other names.
The post $4,000 buys 913 shares in an impressively reliable ASX dividend stock appeared first on The Motley Fool Australia.
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 recommended BHP Group. 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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