Last week, Commonwealth Bank of Australia (ASX: CBA) released its half year results and revealed just how much rising interest rates are boosting its profits.
For the six months ended 31 December, CBA reported a 12% increase in operating income to $13,593 million and a 9% lift in cash earnings to $5,153 million.
This allowed the CBA board to increase its interim dividend by 20% year over year to a fully franked $2.10 per share.
The good news is that its final dividend is forecast to be even larger. According to a note out of Morgans, its analysts expect a fully franked final dividend of $2.40 per share, bringing the total dividends to $4.50 per share.
Based on where CBA shares are currently trading, this will mean a fully franked 4.5% yield for investors.
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How to generate a $20,000 second income from CBA shares
If Morgans is on the money with its forecast, for a $20,000 second income you would need to own approximately 4,444 CBA shares.
Unfortunately, this would come at some cost for investors.
CBA shares are currently fetching $100.97. This means you would need to invest approximately $450,000 to yield the desired amount.
The long way
What if you don't have $450,000 to invest? Well, don't rule out being able to achieve this goal in the future.
The share market has generated a return of 10% per annum historically. With that in mind, making consistent investments into a balanced portfolio of high quality ASX shares could get you to $450,000 sooner than you might think.
The market is of course not guaranteed to generate a 10% per annum return in the future, but if it were to deliver returns in line with historical averages and your portfolio matched it, investing $10,000 per year would grow into $450,000 in 17 years.
Once it gets to that point, you could then switch your focus to income and build a portfolio yielding 4.5% to receive a $20,000 second income without lifting a finger.
The key is to have a plan, stick to it, and let compounding work its magic.
