Passive income is what every Australian dreams of.
Kicking back and having money coming into your bank account without lifting a finger. How good would that be!
But what many don't realise is that's within the grasp of ordinary folks.
For example, you just need a handful of shares from one reliable S&P/ASX 200 Index (ASX: XJO) company to bank $1,000 of passive income each year.
Let's take a closer look.
Here's how to rake in $1,000 of passive income
There are many dividend stocks in the ASX 200 that could achieve this, but let's use BHP Group Ltd (ASX: BHP) for argument's sake.
Although one must remember past performance is no indicator of the future, BHP is a sturdy example because it's a massive company that's one of the leaders in its industry and has an excellent record of paying out distributions.
What's more, I've been impressed by how willing it is to adapt to the global demand for decarbonisation. It has actively sold off many of its coal-mining assets and pivoted to extract more minerals required for battery technologies, such as copper.
Without even getting into the income production, the business is a solid long-term investment.
So, according to the ASX, BHP's dividend yield currently stands at a chunky 8.43%.
That's fully franked so, depending on your financial circumstances, the amount of income you receive could be even greater.
Even just at the net yield, you only need to buy 256 BHP shares at the Tuesday morning price of $46.49.
That makes it a $11,901.44 investment.
Each year, if BHP can keep up the 8.43% dividend yield, that investment will pay you $1,003.29 of passive income.
That could cover all the Christmas presents you need to buy for family and friends. Or it could pay for a nice weekend away in the country.
Here's how to rake in $17,000 of passive income
Now, if you can afford to invest a little more, things start to get really interesting.
If you have the funds to buy 1,000 shares, that is a $46,490 investment.
The BHP share price has grown 42.7% over the past five years, even through the COVID-19 market crash. That translates to a compound annual growth rate of 7.37%.
If it can keep that up over the coming years and you keep reinvesting the 8.43% dividend yield, your nest egg will be absolutely supercharged.
After just 10 years, your BHP shares will be worth a whopping $201,579.
By that time, the dividends will be providing you a passive income of $16,993 per year.
Forget a weekend away, it's time to take the family on an overseas trip!
