It's never too late, or too early, to start earning a passive income from ASX dividend shares.
Here's how I'd go about investing $3,000 today to begin locking in a regular second income stream.
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Before investing a single dollar
Before investing a single dollar towards earning a passive income from ASX dividend shares I'd make sure to do plenty of research. My primary aim is to avoid investing in stocks that look likely to see their share price fall significantly. Investors might also wish to seek some expert advice.
When it comes to specific ASX shares, I prefer larger companies with long track records of making reliable dividend payments.
While I may bend this rule, generally I'd stick with S&P/ASX 200 Index (ASX: XJO) shares. These tend to be less volatile than smaller stocks. And there's usually more readily available research covering the bigger end of the market.
I also would lean towards ASX shares offering full franking credits. That should see me holding on to more of my passive income each year when it comes time to pay the ATO its pound of flesh.
Then I'd look for companies operating in different sectors. That way, if one sector takes a hit at any given time, my whole portfolio won't go down with it.
Finally, I'd have a look at what kind of yields the ASX dividend shares that meet my criteria are paying. I'd keep in mind that these are trailing yields, based on payouts over the past 12 months. Meaning the passive income they pay in future years could well be higher or lower, depending on a range of company-specific and macroeconomic factors.
To try to ensure I'll receive the passive income I'm gunning for, I'd invest in ASX shares I believe will continue to trade at market-beating yields.
And with a longer-term horizon in mind, I'd reinvest these dividends in the early years, to make the most of the magic of compounding.
With that said, here's how I'd go about investing that $3,000 today.
Three leading ASX dividend shares offering market-beating passive income
To begin building my passive income stream, I'd split my $3,000 evenly between these three ASX shares.
First, ASX 200 retail stock JB Hi-Fi Ltd (ASX: JBH).
Over the past 12 months, JB Hi-Fi has made two fully franked dividend payments, totalling $3.50 per share. At the current share price of $45.69, that works out to a trailing yield of 7.7%. The JB Hi-Fi share price is up 9% over the past 12 months.
Next up I'd target ASX 200 bank stock Westpac Banking Corp (ASX: WBC).
Westpac paid two fully franked dividends over the past 12 months, totalling $1.34 per share. At the current share price of $21.81, that equates to a trailing yield of 6.1%. The Westpac share price is up 8% over the 12 months.
And the third ASX dividend share I'd invest in for passive income is ASX 200 oil and gas stock Woodside Energy Group Ltd (ASX: WDS).
Over the last 12 months, Woodside paid two fully franked dividends totalling $3.75 per share. At the current share price of $36.06 that works out to a trailing yield of 10.4%. The Woodside share price is up 11% over the last 12 months.
If I split my $3,000 evenly between these ASX 200 dividend shares, I'd be earning an average trailing yield of 8.1%. Or $242 a year in passive income, with potential tax benefits.
And if I reinvest those dividends, I should see that passive income grow over time.
