ASX dividend shares are capable of producing a high level of dividend income if investors choose ones with a good enough yield.
But, investors shouldn't chase a high dividend yield just for the sake of it. If a business isn't able to maintain (or even grow) earnings, then I think that the dividend is in danger of being cut.
So, with that in mind, I'd only want to choose businesses that look like they can achieve earnings per share (EPS) growth. This would achieve both good dividend income and hopefully some share price growth over the long term as well.
I think businesses that are in a good industry, with consistent demand, and are re-investing for growth, can lead to attractive dividend returns.
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ASX dividend shares that could make $1,600 of dividend income from a $20,000 ASX share portfolio
To get that sort of income level, we're talking about an average yield of 8%. So, let's split the money across four investments.
I'd start with the ASX share Shaver Shop Group Ltd (ASX: SSG), one of the largest retailers of all things related to hair removal. Even in a downturn, I think the company will still see decent demand – our hair doesn't stop growing just because the economy is faltering. An ongoing store rollout can help earnings grow.
The ASX share's EPS and dividend are expected to rise in FY24 and FY25, while the FY23 grossed-up dividend yield is predicted to be 14.3%, according to Commsec.
Pacific Current Group Ltd (ASX: PAC) is an investment manager that invests in other fund manager businesses and helps them grow. Its portfolio of managers around the world is diverse, and it includes a stake in GQG Partners Inc (ASX: GQG). Pacific Current is expecting to make more investments, while its current fund managers could see further funds under management (FUM) growth.
According to Commsec, the ASX dividend share could pay a grossed-up dividend yield of 8.7%.
Next, it's hard to miss Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) as a dividend-focused investment. It has grown its ordinary dividend every year since 2000, thanks to its defensively-positioned investment portfolio. But, that portfolio keeps growing as the business re-invests some cash flow into more opportunities.
Its last two ordinary dividends amount to a grossed-up dividend yield of 3.8%.
Wesfarmers Ltd (ASX: WES) is the parent business of a number of Australia's leading businesses including Bunnings, Kmart, Officeworks and Wesfarmers chemicals, energy and fertilisers (WesCEF). It is building platforms of growth, and it's opening new growth avenues including in lithium, and beauty and health.
It aims to grow the dividend over time for shareholders, and Commsec numbers suggest it's going to pay a dividend yield of 5.3%.
Foolish takeaway
Between these four ASX share names, the average yield is just over 8%, generating the required $1,600 of passive dividend income from a $20,000 investment.
I think these names can produce growing dividend income, growing earnings and hopefully some long-term share price growth as well.
But, they're not the only ones that could deliver good dividends.
