Top 8 ASX Dividend Shares for Passive Income Growth

Building a reliable passive income through dividend shares involves seeking out stocks with high yields and potential for future dividend growth. The goal is to balance higher yields with prospects for increasing payouts over time. The following analysis identifies eight ASX shares that meet key criteria for income investors as of September 12th. These shares were selected based on the following factors:

1. A Forward Dividend Yield of at Least 3.5%
   The minimum yield threshold is set at 3.5%, which aligns with the yield on 5-year Australian government bonds at the time of assessment.
2. Expected Dividend Growth
   The forward dividend yield reflects analysts' expectations for FY25, focusing on companies anticipated to grow their dividends rather than those expected to maintain or cut payouts.
3. Wide or Narrow Economic Moat Rating
   Companies with a structural competitive advantage that enables them to earn excess returns over a prolonged period were favored. A wide or narrow moat suggests a strong position for maintaining and growing dividends.
4. Low or Medium Uncertainty Rating
   The Uncertainty Rating indicates the predictability of future business outcomes. Low and medium ratings provide greater confidence in future dividend estimates.
5. Star Rating of Four or Five
   A four or five-star rating signifies that shares are considered attractive relative to their perceived value, ensuring that even strong dividend payers are not overpriced.

The following eight ASX companies met these criteria:

1. APA Group (ASX:APA)

APA Group stands out as Australia’s leading gas infrastructure company, with gas transmission and distribution forming the core of its business. APA’s narrow economic moat arises from its extensive gas pipeline network, which benefits from high entry barriers due to substantial capital costs. The company pays out a conservative 60%-70% of free cash flow. Analysts forecast a $0.57 per share dividend for FY25, representing a forward yield of 7.6% based on a current share price of approximately $7.50. APA shares are trading at a 20% discount to their estimated fair value.

2. Aurizon (ASX:AZJ)

Aurizon operates the Central Queensland Coal Network (CQCN) railway under a lease agreement that extends until 2109. The company’s narrow moat is attributed to its leasehold on the CQCN, an asset that is challenging to replicate. Aurizon's earnings primarily derive from charging for access to the CQCN and coal haulage operations. Analysts project a dividend of $0.20 per share in FY25, yielding nearly 6% at a share price of $3.40. The shares are currently 25% undervalued compared to the fair value estimate.

3. Dexus (ASX:DXS)

Dexus is a diversified Australian real estate investment trust (REIT), focusing on income from rents, property management, and development. The company’s narrow moat is supported by its high-quality office properties in Sydney and Melbourne, where new supply takes significant time to develop. Analysts expect a dividend of $0.37 per share in FY25, offering a forward yield of 4.9% at a current price of $7.50. Dexus shares are trading at a 30% discount to their fair value estimate.

4. Endeavour Group (ASX:EDV)

Endeavour is a major omnichannel liquor retailer, operating brands such as Dan Murphy's and BWS. It also has substantial interests in hotels and gaming. Endeavour’s dominant market share and scale provide a competitive edge, leading to higher operating margins. Analysts forecast a dividend of nearly $0.22 per share in FY25, with a forward yield of 4.3% based on a share price of around $5. The shares are 18% below the fair value estimate.

5. NIB Holdings (ASX:NHF)

NIB Holdings is a prominent health insurance provider in Australia, leveraging its significant market share to negotiate favorable terms with healthcare providers. The company’s narrow moat is underpinned by switching costs for policyholders. Analysts expect a dividend of $0.29 per share in FY25, representing a forward yield of 4.9% at a recent share price of $5.80. NIB shares are trading at a 21% discount to their fair value estimate.

6. Sonic Healthcare (ASX:SHL)

Sonic Healthcare is a leading private pathology operator in multiple countries, including Australia and Germany. Its scale provides cost advantages and operational efficiency. Analysts project a dividend of $1.08 per share for FY25, yielding 4% at a share price of $26.84. Sonic shares are trading at a 17% discount to their fair value estimate.

7. Spark New Zealand (ASX:SPK)

Spark New Zealand holds a strong position in the New Zealand telecommunications market, with significant revenue from mobile and broadband services. The company’s narrow moat stems from its cost advantages and scale. Analysts forecast a dividend of just over $0.25 per share for FY25, representing an 8% yield based on a share price of $3.10. Spark shares are trading around 24% below their fair value estimate.

8. Telstra (ASX:TLS)

Telstra dominates the Australian telecommunications sector, benefiting from scale-based cost advantages. The company’s large customer base allows it to spread costs effectively. Analysts expect a dividend of $0.18 per share in FY25, offering a forward yield of 4.5% at a recent share price of $3.96. Telstra shares are 12% below the fair value estimate.

These ASX dividend shares represent attractive opportunities for income investors seeking stable returns and potential growth. Each company demonstrates strong fundamentals and meets stringent criteria for dividend yield and growth potential.