Ah, passive income… the holy grail of the FIRE (Financial Independence, Retire Early) movement and investors everywhere. Passive income is, after all, what we all dream of – being able to go to sleep and have money come into our account without any active effort at all.
ASX shares are a great way to get passive income – we have a lot of dividend-paying shares on our exchange due to our unique tax system (dividend imputation and franking credits are not enjoyed in most countries) and this makes passive income from shares easier in Australia than most other countries around the world.
Here are three ASX dividend paying shares that I think are great options if you’re after passive income.
Australian Foundation Investment Co. Ltd. (ASX: AFI)
AFIC is a Listed investment Company (or LIC) that has been around since 1928. During this time AFIC has built a reputation for solid dividend payments that increased most if not all years. AFIC holds many big dividend paying companies in its portfolio such as Commonwealth Bank of Australia (ASX: CBA), Telstra Corporation Ltd (ASX: TLS) and BHP Group Ltd. (ASX: BHP). Being a LIC, AFIC has the ability to ‘hoard’ dividends and franking credits and pay them out when they see fit (which was very useful for investors during the GFC). AFIC’s strong portfolio, as well as its size, history and 5.4% dividend yield (grossed-up), make this stock a great option for passive income.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
‘Soul Patts’ is close to dividend royalty on the ASX having paid a dividend every year since its inception in 1872 and having increased said dividend every year since 2000. So this stock is off to a great start passive income wise. Soul Patts is more of an investment company these days – investing in other businesses on the ASX such as Brickworks Ltd (ASX: BKW) and TPG Telecom Ltd (ASX: TPM). I would feel very comfortable owning Soul Patts shares for passive income as it (with this impressive record) has earned its rightful place as dividend royalty on the ASX
WAM Capital Ltd (ASX: WAM)
WAM is another LIC that has (only) been around since 1999. Since then, WAM has delivered a very impressive performance of 16.7% per annum, including a rising, fully-franked dividend that now yields over 10% grossed-up. WAM focuses on small to mid-size Australian companies, including Afterpay Touch Group Ltd (ASX: APT) and Collins Foods Limited (ASX: CKF). Although WAM hasn’t increased this dividend every year (there was a dip during the GFC), it still has been on a mostly upward trajectory – and with this monstrous yield, who cares anyway. WAM is another great option for passive income, as you can be assured that your money is being managed very well with this track record.
With these investments, you can put your money to work earning passive income without too much stress. All of these companies have management teams that have demonstrated an excellent history of putting shareholders’ interests first and paying out a rising stream of passive income, so make sure you have a look if you’re after that Holy Grail.
5 stocks under $5
We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.
And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!
*Extreme Opportunities returns as of June 5th 2020
Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Brickworks and Collins Foods Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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