For $400 in monthly passive income, buy 28,236 shares of this ASX 200 stock

Investors wanting good dividends may be able to call on this stock for income.

Tristan Harrison

Author Bio Tristan Harrison has a decade of experience as an ASX share investment writer and was previously a business, tax and audit accountant for seven years. Tristan has contributed to The Motley Fool since October 2016. He has an advanced diploma from the Association of Accounting Technicians and is currently enrolled in the Chartered Institute Management Accountant (CIMA) program. Tristan's goal is to help Australians learn about great ASX shares that can help grow their portfolio, wealth and dividends over the long-term. Areas of Expertise ASX dividend shares and passive income strategies ASX growth shares and ETFs Business and company financial analysis Franking credits and personal tax topics Personal finance Education Advanced diploma from the Association of Accounting Technicians Enrolled in the Chartered Institute Management Accountant (CIMA) program Social Media X/Twitter Favorite Investment Quote "Live within your income and save so that you can invest." — Charlie Munger

Published April 2, 2023 7:00 am AEST

The S&P/ASX 200 Index (ASX: XJO) stock Telstra Group Ltd (ASX: TLS) could be a smart choice for dividend investors looking for passive income.

Telstra has long been regarded as an ASX dividend share by some investors.

Whilst it has paid a high dividend yield for a long time, I've been cautious about businesses that aren't growing their earnings because it could mean that a dividend cut occurs. Telstra ended up cutting its dividend in FY18 and FY19.

But, pleasingly, dividend growth has returned to the telco, and it appears likely to continue.

With that positive outlook for passive income, I think the business could be a good one to consider for a contender to generate $400 in monthly passive income.

a man looks down at his phone with a look of happy surprise on his face as though he is thrilled with good news. — Image source: Getty Images

Telstra's potential to pay good passive dividend income

The ASX telco share doesn't pay a dividend each month, it actually pays one every six months. So, for our purposes, we're going to calculate an annual amount which can then be divided into 12 equal parts.

Receiving $400 per month would translate into $4,800 of annual passive dividend income.

That's quite a lot of dividends.

But, it helps that Telstra has a pretty high projected dividend yield for FY23 and beyond.

According to Commsec, Telstra shares are expected to pay an annual dividend per share of 17 cents. At the current Telstra share price, that represents a grossed-up dividend yield of 5.75%.

Based on trying to receive of $4,800 of annual income, investors would need to buy 28,236 Telstra shares.

The telco is then expected to grow its dividend to 18 cents per share in FY24 and then another increase to 19 cents per share in FY25.

If Telstra does keep increasing its dividend to FY25, then investors would need to own 25,264 shares to gain $4,800 of annual passive dividend income in FY25.

Will these payments happen?

Dividends are not guaranteed. Forecasts are just estimates, so the dividend payments could be smaller, or bigger, than expected.

Telstra is working on a number of initiatives to grow its profit in the coming years with its T25 strategy. It wants to reduce its costs, have the best 5G network and grow its margins for investors.

If the company is able to achieve these things, then I think the dividend can keep steadily climbing.

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