If you're at that stage in your investment journey where a passive income is your number one priority, then you're not alone.
Generating an income from ASX dividend shares is something that countless Australians are doing right now.
But how should you do it in 2023? Listed below are three key steps that could help you on your journey next year:
Step 1: Find the right ASX 200 dividend shares
Picking the most suitable ASX 200 dividend shares to generate a passive income is of course the best place to start. Sticking with blue chip shares could be the smart move here. These companies tend to be stable and have a long history of paying dividends. There's plenty to choose from here. Retail giant Woolworths Group Ltd (ASX: WOW), utilities company APA Group (ASX: APA), and even mining behemoth BHP Group (ASX: BHP) could be worth investigating.
Step 2: Work out your investment time horizon
The next thing for investors to look at is their investment time horizon. The time you plan to spend in the market to build your income will have a big impact on the type of ASX 200 dividend shares you might want in your portfolio. For example, if you're just out of university and are thinking ultra-long term, you could invest in growth companies that pay dividends. Altium Limited (ASX: ALU) and Domino's Pizza Enterprises Ltd (ASX: DMP) are two dividend payers that are aiming to double the size of their businesses in the medium term. They may only offer modest dividend yields now, but they have the potential to grow their payouts significantly in the future.
Whereas if you are nearing retirement, you might want to buy ASX 200 dividend shares that offer larger and more stable yields now. Telco leader Telstra Corporation Ltd (ASX: TLS), supermarket giant Coles Group Ltd (ASX: COL), or big four bank Westpac Banking Corp (ASX: WBC) might be worth considering.
Step 3: Active monitoring
Finally, another thing for investors to consider is the active monitoring of their portfolio. After all, past performance is not a guarantee of future returns. There's always the potential for unexpected changes, like we saw during the COVID-19 pandemic, that put even historically strong companies in a difficult place and lead to dividend cuts or even suspensions. If that happens, investors may want to re-evaluate their investments and look to see if their capital could generate better returns in other shares.
