I'm sure many readers would agree that having a passive income of $50,000 would be incredible. After all, who wouldn't want money for doing nothing?
Well, the good news is that this is achievable with the share market thanks to dividends.
A dividend is a portion of a company's profit that it pays out to shareholders, in return for their investment.
How can you earn $50,000 in dividends?
If you already have a considerable sum of money, then you're halfway there.
I estimate that Commonwealth Bank of Australia (ASX: CBA) will pay a dividend of approximately $3.70 per share in FY 2021. Based on its current share price, this equates to a 6% dividend yield.
To generate a passive income of $50,000 from Commonwealth Bank's dividends, you would need to invest $830,000 in its shares.
But not everybody is lucky enough to have those sorts of funds.
How else can you generate $50,000 of passive income?
If you have time on your side then you can do this by investing in dividend-paying companies which have the potential to grow strongly over the long term.
For example, biotherapeutics giant CSL Limited (ASX: CSL) hit the ASX boards in the 1990s at 76.6 cents per share (after adjusting for stock splits).
In FY 2021 CSL is forecast to pay a $4.00 per share dividend to shareholders. Whilst this equates to an insignificant yield for new buyers of its shares, it is life-changing for long-term shareholders.
For those that bought shares at its listing, this dividend represents a 522% yield on cost. This means for every dollar invested when it listed, investors will be receiving $5.22 in dividends in FY 2021.
What this also means is that an investment of just $9,600 in its shares at CSL's IPO would generate $50,000 in dividends in FY 2021. And let's not forget the capital gains you would have made over the period as well.
But which shares will be the ones to do this in the future?
I think Altium Limited (ASX: ALU) and Kogan.com Ltd (ASX: KGN) could be worth looking at. Both pay dividends and have the potential to grow materially over the next couple of decades.
