Sitting back and enjoying life while a steady income hits my account without me having to lift a finger sounds picture perfect. Though, setting up a portfolio of S&P/ASX 200 Index (ASX: XJO) dividend shares capable of offering $1,000 of monthly passive income might sound daunting.
But these things are often simpler than they seem. Here's how I'd go about setting myself up to receive consistent income from ASX 200 giants like BHP Group Ltd (ASX: BHP) or Commonwealth Bank of Australia (ASX: CBA).
How to receive $1,000 a month from ASX 200 dividend shares
Figuring out how much I need to invest in ASX 200 dividend shares to receive $1,000 of passive income is relatively simple. Though, it will depend on the yield on offer.
If I wanted to end up with $1,000 of passive income from dividend stocks each month, I would need to target $12,000 of dividends annually.
That means, if I were targeting shares with an average dividend yield of 10%, I'd probably need a portfolio worth $120,000 to receive $1,000 of dividends a month. Though, a 10% yield is particularly high and, often, difficult to sustain.
Right now, the SPDR S&P/ASX 200 (ASX: STW) – an exchange traded fund (ETF) tracking the ASX 200 – offers a 4.56% dividend yield.
Assuming an investor beats that slightly and achieves an average dividend yield of 5%, they would likely need to have a portfolio worth $240,000 to receive an average of $1,000 each month.
However, it's worth remembering that dividends are never assured and past performance doesn't guarantee future performance.
Building a portfolio
Of course, many readers might be questioning how one would go about building a $240,000 portfolio. It might sound like a daunting figure for an investor without bucketloads of spare cash lying around.
But one doesn't need to invest all at once. A portfolio of that size can be built up over years or decades.
Slowly building a substantial portfolio could also allow an investor to harness the power of compounding and take advantage of dividend reinvestment plans (DRPs). Thus, an investor's initial outlay could end up being less than the value of their portfolio.
How I'd find ASX 200 dividend shares to buy
Buying ASX 200 dividend shares really isn't all that different to buying any other stock.
I would personally consider a company's long-term outlook, competitive advantages, and balance sheet before investing in its shares.
I would also consider its dividend yield. And perhaps more importantly, whether its balance sheet can sustain its yield.
I would also look at its dividend history. It could be a good sign if a company has previously continually paid out dividends, even in tough times.
By considering these factors, and likely more, I would hopefully find myself with a diverse portfolio of dividend shares capable of providing both returns and growth in years to come.
That way, I could potentially reach my goal of receiving $1,000 of passive income from ASX 200 dividend shares each month faster. Though, no investment is guaranteed to provide returns or growth.
