It is totally possible to replace your entire wage with dividends from ASX shares.
In my opinion, having excess cash in the bank earning interest at less than 2% just seems like a bit of a waste.
Wage growth is at a very low level. Unless you can job hop your way to success it seems the best to grow your income is with ASX dividend shares.
The type of shares you could be looking at depends on how much income you're trying to make and how quickly.
You need to replace your wage fairly soon
You might be at a stage in life where your retirement is coming up fairly soon. Maybe you're in a physical job and you're getting to the end of your career. In this situation I think you need to be looking at dividend shares with high yields if you don't have much time. But they still need to display a bit of growth.
Depending on your age and assets, you may be eligible for the pension (or part pension) which could supply a good amount of your necessary income requirements.
However, perhaps you still have $100,000 or $200,000 to invest in shares to boost the income further. You could invest in the overall ASX share market with an investment like Vanguard Australian Shares Index ETF (ASX: VAS) which has a mostly-franked dividend yield of 4%.
But, there are some listed investment companies (LICs) that can pay out sustainable dividends from the capital gains they make and the dividends they receive. For example, WAM Research Limited (ASX: WAX) currently has a grossed-up dividend yield of 9.4% and it has increased its dividend every year since the GFC. A portfolio worth $100,000 with a 9.4% yield earns $9,400 before accounting for your income taxes. Another example is Naos Emerging Opportunities Company Ltd (ASX: NCC) which concentrates on small caps and has a grossed-up dividend yield of 10%.
You have longer to replace your wage
Unless you desperately need income it's probably better to go for businesses that pay a decent yield but are creating good total returns over the long-term.
For example, businesses like Wesfarmers Ltd (ASX: WES) and Macquarie Group Ltd (ASX: MQG) both offer prospective grossed-up dividend yields of more than 5% but also have generated solid earnings growth and capital gains.
Some real estate investment trusts (REITs) like Arena REIT No 1 (ASX: ARF), Rural Funds Group (ASX: RFF) and National Storage REIT (ASX: NSR) are growing their operating earnings and their property portfolio values whilst offering yields above 3.75%.
Some of the best-performing blue chips on the ASX have been the infrastructure shares that pay out good cashflow such as APA Group (ASX: APA), Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD).
However, some of my favourite dividend shares are the ones that have been producing for years, grow their dividend year after year, have yields of around 4% or higher and are exposed to some great long-term growth tailwinds. For beyond the foreseeable future I'll be very happy to keep holding: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Magellan Global Trust (ASX: MGG), WAM Microcap Limited (ASX: WMI), Duxton Water Ltd (ASX: D2O), Future Generation Investment Company Ltd (ASX: FGX) and PM Capital Global Opportunities Fund Ltd (ASX: PGF). I'd also really like to invest in shares of Brickworks Limited (ASX: BKW).
Foolish takeaway
I'm aiming to replace my income with dividends over time with many of the names that I've named above. The younger you are the easier it is to build a portfolio and benefit from compound interest, it just takes time. Come up with a regular investment plan, perhaps a monthly investment, and you'll grow excellent wealth.
