Invest $20,000 in ASX 200 shares and get $1,500 each year without lifting a finger

Realising a whopping return from market giants might sound like a pipedream, but it can be done.

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Key points

  • Building an ASX portfolio capable of providing $1,500 of annual passive income might not be as expensive as it sounds
  • It can be done by investing just $20,000 in ASX 200 shares offering an average dividend yield of 7.5% 
  • I've hunted down four ASX 200 giants that fit the bill

Why work for your money when you can make your money work for you? That's the attitude employed by many S&P/ASX 200 Index (ASX: XJO) passive income investors as they hunt for winning dividend shares.

Certainly, investing in ASX 200 shares capable of providing a notable annual income needn't be an expensive venture.

Here's how I would invest $20,000 today if I were targeting $1,500 of dividends each year.

Creating $1,500 of annual income by investing just $20,000

Let's assume I have two goals – to create a $20,000 portfolio and to receive upwards of $1,500 each year without lifting a finger.

I could knock both goals out of the park today by creating a diverse portfolio of ASX 200 shares with an average dividend yield of at least 7.5%.

And that could be just the beginning. If I were to reinvest my dividends, the power of compounding could see my payouts growing substantially over the years to come.

Here's how I might hypothetically achieve my goal by investing in just four ASX 200 shares.

4 ASX 200 shares boasting an average 7.7% dividend yield

Realising an average dividend yield of more than 7.5% by investing in market giants might sound like a pipedream, but it can be done.

Here are four ASX 200 shares I might consider if my goal was to recognise upwards of $1,500 of annual passive income from a $20,000 portfolio:

ASX 200 shareShare price as of Tuesday's closeTrailing dividend yield
Harvey Norman Holdings Limited (ASX: HVN)$4.188.97%
CSR Limited (ASX: CSR)$5.206.63%
BHP Group Ltd (ASX: BHP)$48.019.65%
ANZ Group Holdings Ltd (ASX: ANZ)$25.665.69%

As of Tuesday's close, the four shares boasted an average dividend yield of 7.735%. But, of course, past performance isn't an indication of future performance.

Still, at that rate, $20,000 invested equally across the shares could yield around $1,547 of passive income annually.

I could think of a few ways in which I could spend that sort of extra cash. However, that's not what I would do.

The power of compounding

If I were able to receive around $1,500 of passive income each year, I would likely choose to reinvest it. By doing so, I could compound my earnings.

Let's assume I continue to recognise a 7.735% yield and none of my investments see any capital gains between now and 2033.

By reinvesting my dividends to buy more ASX 200 shares, I could double the value of my portfolio in that time without forking out any more cash. And my dividend income would likely grow alongside it.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Harvey Norman. The Motley Fool Australia has positions in and has recommended Harvey Norman. 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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