Investing in S&P/ASX 200 Index (ASX: XJO) dividend shares for passive income?
You're not alone.
Inflation may have peaked. But with the latest monthly data still showing inflation running at 6.8%, you'll be hard-pressed to find any bank deposit rates that won't actually see your wealth shrink in real terms.
Very hard pressed.
That's where ASX 200 dividend shares can make a world of difference.
If you manage to buy in at a good price and they continue to grow their payouts over time, the yield you receive from your initial investment could potentially far outpace today's inflation rates.
Especially if you seek out ASX 200 dividend shares that come with full franking benefits. That can make a significant difference to how much money you're left holding come tax time.
With that said, here's how I'd aim for $200 per month in passive income.
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$200 a month in passive income from three ASX 200 dividend shares
My ideal passive income portfolio would hold 10 or so shares to provide adequate diversification.
But for the purposes of this article, we'll narrow that down to three.
As you'll see, each of the three ASX 200 dividend shares is a leader within its sector. And each one operates in a very different market.
Those two factors alone help mitigate the risks of placing all your investable money in a single basket.
Which brings us to Woolworths Group Ltd (ASX: WOW).
The Australian retail giant represents a good defensive income investment in today's turbulent times. No matter what happens with the economy, people need to eat and buy basic household essentials.
Woolies management recently declared a 46 cents per share interim dividend, fully franked. That's up 18% from last year's interim dividend. At the current share price – up 17% in 2023 – Woolworths trades on a trailing yield of 2.6%.
And that brings us to our second ASX 200 dividend share for $200 a month in passive income, Commonwealth Bank of Australia (ASX: CBA).
Australia's biggest bank is among the world's best capitalised, an import metric with the recent bank turmoil rocking the United States and Europe.
The CBA board recently declared a $2.10 fully franked interim dividend, up 20% year on year. At the current share price – down 2% in 2023 – CBA trades on a trailing yield of 4.2%.
The third passive income stock on our list is BHP Group Ltd (ASX: BHP).
One of the world's biggest miners and the biggest stock listed on the ASX, BHP's fortunes are closely hinged on commodity prices, predominantly iron ore and copper.
Both industrial metals have been trading at historically elevated prices. While those may come down in the medium term, both metals are essential to global development. And BHP is well-placed to deliver them.
BHP recently paid a fully franked interim dividend of $1.36 per share. Now that's down 35% year on year from the record interim dividend declared in FY22. But BHP still trades on an impressive trailing yield of 8.3%.
How much to invest?
Assuming I buy an equal number of each of the three ASX 200 dividend shares above, my average fully franked yield would be 5.03%.
Should those yields remain the same (future yields may well be higher or lower), I'd need to invest $45,283.02 across the three stocks to achieve my $200 a month in passive income.
That may be a lot to invest all in one go.
But if I were to invest $1,000 per month, I'd reach my passive income goal in less than four years.
