The Highest-Yielding ASX Dividend Stocks for May 2025—and the Risks to Watch

As investors hunt for reliable income streams in an era of economic uncertainty, dividend-paying stocks remain a cornerstone of portfolios. The Australian Securities Exchange (ASX) hosts several compelling candidates, but discernment is critical. While high yields can entice, they often come with trade-offs—volatility, cyclicality, or payout sustainability risks. Below, we dissect the top dividend stocks to monitor in May 2025, weighing their potential rewards against the perils lurking beneath the surface.

1. GQG Partners Inc (ASX: GQG): The High-Yield Fund Manager

GQG Partners, the alternative assets powerhouse, sits atop the ASX dividend leaderboard with a projected 10% yield in FY2025, climbing to 11.4% by FY2026 if Goldman Sachs’ forecasts hold. The firm’s 90% dividend payout ratio is underpinned by robust growth: funds under management (FUM) surged to $161.9 billion in March 2025, up from $153 billion three months prior, with net inflows exceeding $1 billion monthly.

Why it’s compelling: Unlike volatile sectors like mining or retail, GQG’s dividends have risen steadily since 2022, offering predictability. Its focus on private equity and real estate—a sector insulated from short-term market swings—adds stability.

The catch: A high payout ratio leaves less room for error. Investors should monitor FUM trends closely; a slowdown in net inflows could pressure dividends.

2. Rio Tinto Ltd (ASX: RIO): Mining’s Reliable Dividend Machine

Rio Tinto’s 4.9% dividend yield in FY2025 may pale next to GQG’s, but its growth trajectory and franking credits make it a bedrock holding. Analysts expect yields to hit 6% by FY2027, fueled by copper production growth from the Oyu Tolgoi UG mine and iron ore expansions. Goldman Sachs has a $140.80 price target, implying a 21% upside from current levels.

Why it’s compelling: Rio’s balance sheet is fortress-like, with 30% EBITDA growth forecast by 2030. Its fully franked dividends and exposure to commodities like copper—vital for green energy transitions—add long-term appeal.

The catch: Mining is inherently cyclical. A slowdown in China’s infrastructure spending or a drop in iron ore prices could crimp profits and dividends.

3. IVE Group Limited (ASX: IGL): High Yield, High Caution

With a 7.29% yield, IVE Group ranks among Australia’s top dividend payers. Its 66.7% payout ratio is well-covered by earnings, and recent half-year profits hit A$27.09 million. Yet, its history of dividend volatility—spiking and dipping over the past decade—remains a red flag.

Why it’s compelling: IGL’s cash payout ratio of 26.7% suggests ample liquidity to sustain payouts. Its focus on niche sectors like aged care and property management offers defensive qualities.

The catch: Investors must scrutinize management’s strategy. Without consistent earnings growth, this yield could prove fleeting.

4. GR Engineering Services (ASX: GNE): Cyclical Upside

GNE’s 6.76% yield reflects its exposure to the mining and energy sectors. Recent dividend hikes to A$0.10 per share signal improved stability, but its history of volatile payouts lingers.

Why it’s compelling: Revenue growth in mineral processing and infrastructure projects, paired with a 35.7% payout ratio, suggests a path to sustainable dividends.

The catch: Engineering stocks are tied to commodity cycles. A downturn in mining activity could destabilize cash flows.

5. Diversified United Investment (ASX: DUI): Steady but Small

DUI offers a 3.15% yield, modest compared to peers, but its 94.2% payout ratio is backed by strong cash flows. A decade of consistent dividends and fully franked payments make it a defensive choice.

Why it’s compelling: Stability in an uncertain market.

The catch: The yield is too low to satisfy aggressive income seekers.

The Bigger Picture: Risks and Opportunities

While these stocks offer enticing yields, three macro risks loom large:
1. Interest Rate Sensitivity: Higher rates could pressure equity valuations, particularly for high-yield stocks.
2. Cyclical Downturns: Mining and engineering stocks are vulnerable to commodity slumps or global economic slowdowns.
3. Payout Sustainability: High payout ratios (e.g., GQG’s 90%) leave little margin for profit declines.

Conclusion: Balance Aggression with Caution

The top picks for May 2025 are clear:
- GQG (10-11.4% yield) for aggressive income seekers, provided FUM growth holds.
- Rio Tinto (4.9-6% yield) for capital appreciation and dividend growth, despite cyclicality.
- IVE Group (7.29% yield) if its earnings trajectory stabilizes.

Yet, investors must diversify. Pair high-yield names like GQG and IGL with defensive picks like DUI or sectors like utilities. Always cross-check payout ratios, cash flow health, and sector-specific risks. In a market hovering near the 8,000-point ASX200 milestone, dividends are a lifeline—but one that demands vigilance.

As the saying goes: High yields can beget high risks. Proceed with eyes wide open.