If you would like a passive income of $50,000 per year, then the share market is arguably the place to do it.
This is because a large number of shares on the Australian share market pay their shareholders dividends each year.
How can you earn $50,000 worth of dividends each year?
There are two ways to earn $50,000 of passive income from dividends each year – the long way and the short way.
The way you go depends entirely on your starting finances. Those that have built up a considerable nest egg can do it the short way.
The short way involves investing into the shares of dividend favourites such as Commonwealth Bank of Australia (ASX: CBA) and Telstra Corporation Ltd (ASX: TLS). I estimate that their shares currently offer FY 2021 dividend yields of 5.3% and 5% yields, respectively.
This means that investments of $940,000 and $1 million in their respective shares would yield $50,000 in dividends next year.
What about the long way?
Not everyone has funds of that nature to invest. So how else can you do this?
The long way to achieve this is to invest in dividend-paying shares which have the potential to grow strongly over the long term.
The prime example of this is CSL Limited (ASX: CSL). As I mentioned here earlier this week, if you invested in the biotech giant at its IPO, you would have paid a stock-split-adjusted price of $0.76 per share.
In FY 2020 CSL is expected to pay a dividend of approximately $3.13 per share. This means that its shares provide a yield on the cost you paid of 411%.
This means that if you had invested just $12,165 into CSL's shares at its IPO in 1994, you would have 16,006 shares. And those shares would be yielding $50,000 in dividends this year.
Not only that, but with CSL's shares now changing hands at $301.84, they would have a market value of approximately $4.8 million.
Not bad for a ~$12,000 investment, right?
But what about the future? It is worth remembering that very few shares will have as much success as CSL. But I'm confident there are some out there which have the potential to grow both their share price and dividends at a strong rate over the next couple of decades.
Two that come immediately to mind are electronic design software company Altium Limited (ASX: ALU) and ecommerce company Kogan.com Ltd (ASX: KGN).
