What would you say if I offered you $500 a month to do absolutely nothing? I'd bet your answer would be a reverberating 'yes'. Fortunately, there's a way to establish a $500 monthly passive income stream by investing in ASX shares – and it needn't break the bank.
Here are the five steps I'd take to begin building a rewarding dividend income portfolio in 2023.
Step 1: A long-term approach to an ASX passive income portfolio
Assuming a 4% dividend yield, a $500 monthly passive income will demand a portfolio worth around $150,000. That's certainly not pocket change.
Before I even start creating a passive income stream, I will first contemplate the fact that doing so will take time.
Fortunately, I believe I can speed up the process by consistently investing in quality shares and reinvesting any dividends I receive – thereby compounding my gains.
Over the years, my passive income portfolio could grow with very little time or energy invested on my part.
Here are three ASX shares I'd buy to kick-start my portfolio.
Step 2: Simplicity in diversification
Washington H Soul Pattinson and Co Ltd (ASX: SOL) is one ASX share I believe would deserve a place in my portfolio.
By investing in the investment house, I would gain instant diversification. Further, the company has an impressive track record for paying dividends – having grown its offerings every year since 2000.
The stock currently offers a 2.3% dividend yield.
Step 3: Add an ASX REIT
Investing in ASX real estate investment trusts (REITs) is another way to diversify a portfolio. Doing so offers an alternative to buying an investment property.
One REIT I think could be a great passive income opportunity is the Charter Hall Long WALE REIT (ASX: CLW).
The trust holds $7.2 billion of real estate assets with a weighted average lease expiry (WALE) of 11.8 years – half of which are linked to CPI while the other half face an average annual increase of 3.1%.
It currently boasts a 6.7% dividend yield, having paid out 28.6 cents per unit over the last 12 months.
Step 4: Turn to defensive ASX shares
Since we're looking at building passive income over the long term, I'd also consider buying a handful of defensive ASX shares. They're stocks that have the potential to perform well even in economic downturns.
One such defensive company is Wesfarmers Ltd (ASX: WES).
The conglomerate operates retailers like Bunnings, Kmart, and Priceline, as well as energy, chemicals, and industrials businesses.
And the ASX blue chip stock also offers healthy dividends. It currently trades with a 3.65% dividend yield.
Step 5: Sit back and watch your passive income stream grow
After I take the time to set up my passive income portfolio, I'd keep regularly and consistently adding to it and use any dividends I receive to buy more shares. I'd also periodically review my investments to make sure they're still working in my favour.
Though, even if I follow my own advice to the letter, there's no guarantee my strategy will go to plan. Investing comes with risk, and even the most considered investment can result in a loss.
Fortunately, I think I have a good chance of growing a $500 monthly passive income using the three shares mentioned above. Here's how much a $150,000 investment split across the trio would have yielded over the last 12 months:
| Company | Price | Number of Shares | Dividends | Total annual payout |
| Soul Patts | $30.83 | 1,621 | $0.72 | $1,167.12 |
| Charter Hall Long WALE REIT | $4.25 | 11,764 | $0.286 | $3,364.50 |
| Wesfarmers | $51.50 | 970 | $1.88 | $1,823.60 |
That equals $6,355.22 over the last 12 months, or $529.60 each month.
But, of course, past performance isn't an indication of future performance.
