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Replace your entire wage with dividends from ASX shares

If you’re like me you probably don’t want to work until you’re 70 or even older. I think the best way to replace your wage is with dividends from ASX shares.

It is not an easy task to build the net worth necessary to support yourself and your family, particularly with how low wage growth is right now.

I think that ASX dividend shares are the best way to go because the top businesses have the capability to keep increasing their profit and dividends at a pace much faster than inflation and help replace your wage quicker.

What’s the first thing you have to do? Well, you must spend less than you earn so you can invest money into shares. After that you need to decide what type of dividend shares to go for:

Lower yield, higher growth

One option is to consider shares that are growing at a pleasing speed and re-investing a good portion of their profits for more growth. This method may take longer to reach your annual dividend target, but the total returns will likely be stronger and good growth should continue long after you have reached your income target.

Shares that are likely to grow their income over the long-term and generate attractive capital growth are: Magellan Global Trust (ASX: MGG), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), WAM Microcap Limited (ASX: WMI), Altium Limited (ASX: ALU), Webjet Limited (ASX: WEB), REA Group Limited (ASX: REA), Service Stream Limited (ASX: SSM) and Brickworks Limited (ASX: BKW).  

Higher yield, lower growth

If you want to retire as soon as possible then the best strategy could be to choose higher-yielding shares and build that income stream as much as possible. It will probably mean paying higher taxes until you get to your financial target, but the higher yield should mean you don’t have to save as much.

For example, a portfolio worth $750,000 with a yield of 6% will create an income of $45,000. But a portfolio worth $1 million will only generate income of $40,000 with a 4% yield.

However, it’s just as imperative to pay attention to the price you pay for high-yielding shares as well as lower yielding ones. Some of the shares that I think are at attractive prices with good yields and I’d buy are: Rural Funds Group (ASX: RFF), Duxton Water Ltd (ASX: D2O), Future Generation Investment Company Ltd (ASX: FGX), Growthpoint Properties Australia Ltd (ASX: GOZ) and WAM Leaders Ltd (ASX: WLE).

Foolish takeaway

If you keep investing you can definitely replace your wage with ASX dividend shares. I’m using a combination of lower yield and higher yield ideas for my portfolio.

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Motley Fool contributor Tristan Harrison owns shares of Altium, DUXTON FPO, FUTURE GEN FPO, MAGLOBTRST UNITS, RURALFUNDS STAPLED, WAM MICRO FPO, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Brickworks, DUXTON FPO, REA Group Limited, Service Stream Limited, 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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