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How to generate $50,000 of passive income from ASX dividend shares

Would you like $50,000 per year of passive income? I’m sure most readers would say yes to this.

The good news is that this is achievable through dividend shares.

How can you earn $50,000 with dividend shares?

The first and easiest way to generate $50,000 of passive income each year with dividend shares is by investing a large sum of money into the share market.

For example, National Australia Bank Ltd (ASX: NAB) is expected to pay a fully franked dividend of 163.3 cents per share in FY 2020. This equates to a forward yield of 6.3% based on its last close price.

This means that an investment of $794,000 into the banking giant’s shares would yield you $50,000 worth of dividends over the next 12 months. This is vastly superior to anything you’ll receive if these funds were in a savings account or invested in term deposits.

But not everybody is fortunate enough to have these kind of funds to invest. So how else can you do this? Another way to generate $50,000 of passive income takes both time and patience. But it certainly is worth it.

To do this you need to find a dividend-paying share with strong long-term growth potential.

A good example of this is pizza chain operator Domino’s Pizza Enterprises Ltd (ASX: DMP).

Just over 15 years ago its shares were changing hands for around $2.00. Since then the company has grown its footprint globally, resulting in strong sales, earnings, and dividend growth. This has taken its share price up to $54.81 today, which is 27x your original investment.

Furthermore, in FY 2020 the company is expected to pay a fully franked dividend of $1.26 per share. Which means investors that bought shares 15 years ago will be rewarded with a fully franked yield on cost (the yield on the price you paid) of 63% over the next 12 months.

This means it would have taken an investment of just over $79,000 in 2005 to earn $50,000 in dividends in 2020. And let’s not forget the many dividends it has paid since that original investment and the capital gains along the way.

But what about the future?

Whilst finding the next Domino’s is no easy task, I think there are a few companies with the potential to grow their dividends at a very strong rate over the next 15 years.

Altium Limited (ASX: ALU) and A2 Milk Company Ltd (ASX: A2M) could be good candidates. Both have significant runways for growth and could be worth considering. And although the latter admittedly does not yet pay a dividend, it is widely expected to start doing so from FY 2021.

And which other shares could be the next Domino's? These highly rated shares could be ones that allow you to grow your wealth materially over the long term.

Top 3 Dividend Shares To Buy For 2020

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk, Altium, and National Australia Bank Limited. The Motley Fool Australia has recommended Domino's Pizza Enterprises 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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