Looking to earn $200 a month in passive income from ASX shares?
You're not alone.
With inflation biting on one side and soaring interest rates taking a nibble from the other, ASX dividend shares can offer up some helpful extra cash. And if you invest in companies that offer full franking credits, you may be able to hold onto a lot more of that passive income at tax time.
While $200 a month isn't life-changing, I certainly wouldn't baulk at earning an extra $2,400 each year from my ASX shareholdings.
Here's how I'd go about building that passive income stream.
Reaping passive income from ASX shares
First, I have a strong penchant towards larger companies. These tend to be less volatile with more readily available research, so I'd generally restrict myself to ASX 200 shares.
I also like the tax credits that come with fully franked shares.
Then I'd look for a range of companies operating in different sectors to help diversify my portfolio. This will help reduce the risk of all my passive income stocks taking a hit at the same time.
I'd look at buying at least 10 ASX dividend shares to be suitably diversified. But for the purposes of this article, we'll look at three high-yielding stocks.
And, perhaps most importantly, I'd keep in mind that when researching a stock's yield, these figures are based on the past 12 months. Future yields may well be higher or lower depending on a range of company-specific and macroeconomic factors.
Three high-yielding ASX stocks
A mining share
First up, we have ASX coal share Yancoal Australia Ltd (ASX: YAL).
Now Yancoal already bends one of my general rules in that it's not listed on the ASX 200. Also, while Yancoal's final dividend was 100% franked, its interim dividend was not.
Nonetheless, I believe coal prices will remain elevated for the foreseeable future. And after falling 20% in 2023 to $4.63 per share, the Yancoal share price is looking like a passive income bargain to me.
Over the past 12 months, on the back of record thermal coal prices, Yancoal paid an unfranked interim dividend of 52.7 cents per share and a fully franked final dividend of 70 cents per share.
That's $1.227 per share in passive income, and it equates to an eye-popping trailing yield of 26.4%.
A big bank
Next up, we have ASX 200 bank stock Westpac Banking Corp (ASX: WBC).
The Westpac share price has also slipped in 2023, down 8.2% at Friday's close to $20.85 per share.
The big four bank could face some additional headwinds, with potentially rising non-performing mortgage loans in the shorter term. But I'd certainly look into this ASX share to help build my $200 a month in passive income.
Over the past 12 months, Westpac paid a final dividend of 64 cents per share and an interim dividend of 70 cents per share, both fully franked, for a full-year payout of $1.34 per share.
That equates to a trailing yield of 6.4%.
And a retail giant
The third company I'd target for passive income is ASX 200 retail stock Harvey Norman Holdings Ltd (ASX: HVN).
As with the two stocks above, the Harvey Norman share price is in the red in 2023, down 15% on Friday to $3.48 a share. A level I believe is looking attractive.
Now, if inflation proves hard to tame, and we see more rate rises from the RBA, the Harvey Norman share price could slide further from here. But in the slightly longer term, I believe those headwinds will pass, and this ASX share will continue to offer investors reliable passive income.
Over the past full year, Harvey Norman paid a final dividend of 17.5 cents and an interim dividend of 13 cents per share for a total payout of 30.5 cents per share, fully franked. That equates to a trailing yield of 8.8%.
How much to invest in these ASX shares for a $200 monthly passive income?
If I were to buy the same number of shares in each ASX dividend stock, I'd be earning a trailing yield of 13.9%.
For my $200 a month of passive income ($2,400 a year), I'd then need to invest $17,266 in these three ASX shares.
Now, unless I had a large savings pile to draw from, I'd likely invest a smaller amount in ASX shares. But that's okay.
Investing isn't about getting rich overnight. It's a long game.
If I were to invest $300 a month, I'd reach my goal in less than five years.
And that's assuming I spend my passive income as it comes in. If I reinvested those dividends, I'd get to my goal even sooner.
