Who doesn't love passive income?
Getting paid to do nothing is the dream for many Australians.
Even if you are the type that likes to keep busy, having that income come in means you gain freedom. Freedom to spend time on the activities that fulfil you, rather than purely to put food on the table.
And, believe it or not, this liberty is available to the average punter on the street.
Let's take one dividend stock from the S&P/ASX 200 Index (ASX: XJO) to see how we can get a steady stream of passive income going:
So many dividend shares to choose from
Australians are fortunate to have a cornucopia of income-producing shares to choose from on the ASX.
That's because tax laws in this country favour dividends as the channel to return capital back to investors over other methods like share buybacks.
While past performance is no indicator of how a stock might go in the future, Whitehaven Coal Ltd (ASX: WHC) is an example of a company paying back shareholders in a serious way.
The ASX 200 stock is returning a stunning 10.7% dividend yield at the moment. That's fully franked, no less.
While coal mining shares may have been off the radar in recent times, the reality is Russia's invasion of Ukraine last year completely upended the energy market.
The western embargo against Russian oil and gas has meant a huge chunk of global supply is off the table now and into the foreseeable future.
While many nations are making strides in developing renewable energy, such infrastructure takes many years to build up and become reliable.
Meanwhile, the middle class population in emerging economies such as China, India and Brazil is rapidly expanding, pushing up the demand for power.
So coal is back in favour to fill the gap.
This explains how the Whitehaven share price has rocketed an amazing 157% since the start of 2022.
How to tap into $2,000 passive income each year
Anyway, getting back to passive income, just a handful of Whitehaven shares will bring in a tidy stream of cash your way.
Let's say you bought 2,782 shares at the Thursday starting price of $6.72.
That would make it a $18,695.04 investment.
If the company can maintain the 10.7% dividend yield, then you will be receiving $2,000 of income each year. With franking, the amount you eventually gain could be even more.
Congratulations, that's a free holiday each year without lifting a finger!
Do you want more?
Let's see if we can really fatten up that passive income stream.
How to tap into $12,500 passive income each year
If you have the funds to buy a few more Whitehaven shares, the power of compounding will become your best friend.
Assuming that you can buy 6,000 shares, you will have yourself a $40,320 investment.
Now, instead of cashing in the dividend yield, immediately reinvest it into Whitehaven for the next 10 years.
Even if you assume the Whitehaven share price doesn't rise at all over that time, the pot will have still grown to $116,992.
From that point on, you can put your feet up with more than $12,500 of passive income coming in.
Now you can take the whole family to Europe every year.
