In the fast-paced world of stock markets, making the right investment choices can mean the difference between financial success and missed opportunities. Among the myriad of options available on the ASX, Fortescue Metals Group (ASX: FMG) stands out as a prominent player. But when it comes to investing in ASX dividends, sometimes it’s not just about high yields; it’s about sustainable growth.
The Allure of Fortescue Metals Group
Fortescue Metals Group is a giant in the mining industry, primarily known for its iron ore production. Offering an attractive dividend yield of 9.66%, Fortescue's dividend history is impressive, driven by the global demand for iron ore, especially from China. The company's robust financial performance has translated into substantial revenue and profit margins, providing hefty returns to investors.
However, Fortescue's heavy reliance on the cyclical commodities market introduces significant risks. Fluctuations in iron ore prices can lead to volatile earnings and inconsistent dividends. Additionally, the global shift towards sustainability and renewable energy raises concerns about the long-term demand for traditional mining outputs. Although Fortescue is investing in green energy projects, the transition is gradual, and the inherent risks of the iron ore market persist.
While this yield is enticing, it’s crucial to consider the stability behind such numbers. Fortescue operates as a seller of a raw commodity, meaning it lacks control over its pricing. While Fortescue is a solid company, and it might consider adding it to the portfolio if maximising passive income were the sole focus, there's another dividend powerhouse that stands out even more: MFF Capital Investments Ltd. (ASX: MFF).
Unveiling the Real Dividend Powerhouse
MFF Capital Investments offers a different value proposition. As a listed investment company (LIC), MFF focuses on generating long-term capital growth and income through a diversified portfolio of high-quality international investments. This approach mitigates the risks associated with reliance on a single commodity or sector.
MFF Capital specialises in curating a portfolio of U.S. stocks, expertly managed for its shareholders. The mastermind behind MFF’s investment strategy is Chris Mackay, a co-founder of Magellan Financial Group Ltd. (ASX: MFG) and a devoted follower of Warren Buffett’s investment philosophy. Mackay’s strategy focuses on acquiring top-tier companies at attractive prices and holding them for the long haul—preferably forever.
So, what’s in MFF’s investment arsenal? The company’s portfolio includes market giants like Amazon, Visa, Mastercard, Alphabet (the parent company of Google), American Express, and Bank of America. This disciplined approach has proven effective, with MFF shares soaring approximately 60% since July 2022.
MFF: The Dividend Growth Champion
Let’s shift gears and focus on what makes MFF a true dividend machine. Over the past several years, MFF has made it a priority to increase its dividends, successfully raising its annual shareholder payouts every year since 2018.
Back in 2018, MFF’s dividend was a modest 3 cents per share. Fast forward to 2023, and that number has jumped to 9.5 cents. The interim dividend of 6 cents per share paid out this May marked a significant increase from the previous year’s interim dividend of 4.5 cents.
But there’s more to this story. MFF has announced its intention to distribute a final dividend of 7 cents per share later this year. If this happens, the total for 2024 would reach 13 cents per share. This staggering growth reflects a remarkable 333% increase in dividends between 2018 and 2024—a testament to MFF’s commitment to rewarding its shareholders.
The Numbers Speak for Themselves
MFF Capital currently trades at $3.70 per share, with a trailing dividend yield of 2.57%, which is boosted by full franking credits. Should the anticipated final dividend of 7 cents be realised later this year, MFF’s forward yield would rise to 3.51%.
This growth trajectory positions MFF not just as an appealing option but as a cornerstone of the ASX portfolio. In contrast to Fortescue's lofty yield, MFF presents a sustainable model that’s likely to benefit shareholders for years to come.
Why Choose MFF Over Fortescue Right Now?
- Economic Uncertainty: In times of economic uncertainty, diversification is key to managing risk. MFF's diversified portfolio provides a buffer against market volatility, whereas Fortescue's performance is more susceptible to commodity price swings.
- Sustainable Growth: The global shift towards sustainability and renewable energy sources could impact the demand for traditional mining outputs. MFF's investment approach aligns better with this trend, focusing on companies that are part of the sustainable growth story.
- Dividend Reliability: For investors prioritising reliable income, MFF's consistent dividend payouts are a significant advantage. Fortescue's dividends, though generous, can be unpredictable due to the cyclical nature of the commodities market.
- Long-Term Vision: MFF's management team is dedicated to long-term growth and value creation. This long-term vision, combined with prudent investment practices, makes MFF a compelling choice for investors looking to build wealth steadily over time.
In a world where high yields often take centre stage, sustainable growth should be the star of the show. While Fortescue may seem like a tempting choice with its high yield, the reliability and growth potential of MFF Capital Investments make it a smarter investment for dividend-seeking shareholders. If you’re looking for a dividend machine that prioritises growth, MFF is the stock to consider over Fortescue right now.
With its strong foundation and ambitious growth strategy, MFF Capital Investments is set to reward its investors, making it an essential component of a robust ASX portfolio.
