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How to create an annual income of $80,000 of dividends

No-one wants to work their whole life and retire with nothing at the end of it.

Shares have a wonderful ability to pay out cash dividends and keep growing profit at the same time. If you can earn $80,000 a year in dividends you’d be earning the same as the average full time Aussie worker. 

A typical Aussie business like Telstra Corporation Ltd (ASX: TLS) has a grossed-up dividend yield of 6.2%.

So if you had $1,000 and invested it into Telstra you’d receive gross dividends (including franking credits) of $62 after one year. That’s not bad, compared to interest from the bank. But we need to do a lot more before we can reach $80,000 of annual income:

Earn, save and invest

Money sadly doesn’t magically appear. To invest money we need to save, to save we need to earn money.

So, the first step is to make sure you’re earning some money. The reality is that if you want to invest you need to earn enough so your earnings are higher than your basic expenses. Then you need to consistently put money aside for investing. Whether it’s $500 a month or $5,000 a month, your investing money needs to come from somewhere.

It’s important to think about budgeting and consider whether short-term spending or long-term wealth growth is more important for you.

Invest and build your portfolio

After you’ve gotten the saving part down you just have to start putting money to work and leaving it in there for the long-term, no matter how much the market goes up or down. Indeed, the recessions are the cheapest times to buy shares. 

This entire website is designed to help you find the right shares. Maybe you’re happy to achieve the average market returns and invest in exchange-traded funds (ETFs) like iShares S&P 500 ETF (ASX: IVV) and Vanguard MSCI Index International Shares ETF (ASX: VGS).

You can pick out your own shares that you think can outperform the market and deliver solid long-term returns. Two of the shares that I’ve got my eyes on at the moment are Brickworks Limited (ASX: BKW) and Webjet Limited (ASX: WEB).

Or, you can invest in businesses that do the investing for you and hopefully deliver strong long-term returns. Three of the businesses that I think are great picks are Magellan Global Trust (ASX: MGG), WAM Microcap Limited (ASX: WMI) and MFF Capital Investments Ltd (ASX: MFF).

Over the long-term shares have returned an average of 10% a year. If you invest $1,000 a month and your shares return an average of 10% a year, you’ll have $1.97 million after 30 years.

Receive dividends

How much would $2 million give you in annual dividends? With an average dividend yield of 4% you’d get your $80,000 a year goal.

There are plenty of solid dividend shares out there that have dividend yields, including franking credits, substantially larger than 4%. For example, Rural Funds Group (ASX: RFF), Future Generation Investment Company Ltd (ASX: FGX) and WAM Research Limited (ASX: WAX) have much better dividend yields than 4%.

If you’re looking for dividend shares that can provide solid yields now and deliver attractive growth then these top ASX shares could be perfect for a portfolio.

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Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO, Magellan Flagship Fund Ltd, MAGLOBTRST UNITS, RURALFUNDS STAPLED, and WAM MICRO FPO. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Telstra Limited. The Motley Fool Australia has recommended Brickworks, Vanguard MSCI Index International Shares ETF, and Webjet Ltd. 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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