How to generate $20,000 of passive income from ASX shares

Here’s how a touch of luck and some strong ASX dividend shares can deliver a $20,000 passive income to your pocket over time.

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$20,000 per year of passive income from ASX shares sounds pretty good right now. Tragically, times are tough, and everyone is looking for a little bit of extra cash.

Of course if you’re a bargain-seeking Fool, you might be investing heavily in ASX shares. Whether you’re a growth investor, a small-caps buyer or follow a simple dividend strategy, there are opportunities available right now.

Here are a couple of ASX dividend shares that could help you make $20,000 in passive income without lifting a finger.

Make $20,000 in passive income with these ASX shares

There’s the old saying that you need to invest money to make money. That’s especially true with ASX dividend shares. Of course, dividend yields can be a touch misleading given the major volatility in the market at the moment.

However, I like the look of some businesses with strong operations and a solid outlook. In particular, I’m watching Fortescue Metals Group Limited (ASX: FMG) and Harvey Norman Holdings Limited (ASX: HVN).

At the time of writing, the Fortescue share price is trading at a price-to-earnings (P/E) ratio of 4 times. That’s pretty cheap given where we’re at in the economic cycle right now.

On top of that, Fortescue shares are yielding a tidy 9.03%. In fact, that could be the key to making $20,000 in passive income in the coming decades. Fortescue is a large iron ore miner and there are still questions about the outlook for the industry. However, with Chinese demand ramping back up and large infrastructure spending on the cards here in Australia, I think it’s not all bad.

If you were to invest $100,000 in Fortescue shares, the current dividend yield would provide around $9,000 of your $20,000 in passive income. Not a bad return if you’re willing to take on some risk. Of course, diversifying across ASX shares is key. You don’t want to go all-in and bet on just 1 company’s success.

I like Harvey Norman shares as a bit of a balancing act. The retail sector isn’t heavily correlated to mining which is a bonus, but Harvey Norman still offers some good value in my view. Impressively, Harvey Norman shares are yielding 12.55% right now. I wouldn’t expect that necessarily to persist in the current environment, but it does have a strong history of raising dividends.

Based on current prices and these historical dividend payments, investing $90,000 in Harvey Norman shares could get you to your magic $20,000 in passive income from ASX shares.

But what if I don’t have $190,000?

Now, this analysis assumes that there is a lot of spare cash lying around. However, if you’re a long-term investor, that doesn’t have to be the case.

If you can buy strong ASX dividend shares for cheap prices today, this principal amount could grow even further in the future. For instance, let’s say you invest $50,000 in strong ASX dividend shares and they bounce back 25% next year. You could potentially reinvest your dividends, ride the capital gains higher and then have a strong ASX share base to build your income from.

In a bear market like this, strategic buying and a touch of luck could make for a solid $20,000 of passive income in years to come.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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