Here's how I'd use the Warren Buffett method to target lifetime passive income from ASX shares

We can learn a thing or two from Warren Buffett about passive income.

A man in his late 60s, retirement age, emerges from the Australian surf carrying a surfboard under his arm and wearing a wetsuit.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The legendary investor Warren Buffett is an interesting figure when it comes to passive income. Buffett is famous for starving the investors of his company Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) of passive dividend income for decades.

In fact, the last dividend Berkshire paid out was back in the 1960s. Buffett has even joked that he must have been in the bathroom when the payment was approved.

Ever since then, Berkshire shareholders haven't received a single dollar of dividend income.

But that doesn't mean Buffett himself is averse to receiving dividends. In fact, Berkshire is probably one of the largest single recipients of dividend income in the world. Our Foolish colleagues in Buffett's home country of the United States estimated back in June that Berkshire is on track to bank more than US$6 billion in passive dividend income over the coming 12 months.

What's even more mindboggling is that it is estimated that US$5.17 billion of that passive income will be coming from just seven underlying shares in Berkshire's portfolio.

Those Berkshire bankrollers are as follows:

So Buffett is someone who evidently knows a thing or two about building a stream (in this case a raging torrent) of passive income.

But how can we take Warren Buffett's experience to our own ASX and build a stream of passive income from ASX dividend shares that will last a lifetime, as Buffett's has?

Building a Buffett-inspired passive income portfolio

I think there are two key lessons here.

The first is that investors should find high-quality dividend payers that have the financial strength to raise their dividends over time in a meaningful, inflation-beating way.

Take Apple and Coca-Cola. Apple only started paying its investors dividends in 2012. But since then, it has increased its annual payouts substantially every year. Just this year, the technology titan boosted its quarterly dividend payouts by 4.35% from 23 US cents a quarter to 24 US cents.

Meanwhile, Coca-Cola has one of the best dividend growth streaks in the world, having just raised its annual dividend for the sixtieth (yes, 60) year in a row.

The second is that investors should seek a wide range of these quality passive income payers. You'll notice that of those seven Berkshire bankrollers listed above, two are oil shares (Chevron and Occidental), one is a tech stock (Apple), two are financials stocks (Bank of America and American Express), and two are consumer staples giants (Coke and Kraft-Heinz).

Buffett, and Berkshire by extension, is thus able to rely on a wide range of top-tier companies that all operate in different corners of the market. This reduced the portfolio's single-sector risk substantially and ensures that Berkshire's stream of passive income remains strong.

I myself attempt to incorporate these two lessons into my own passive income portfolio. That's why I invest in a range of high-quality shares like Washington H. Soul Pattinson and Co Ltd (ASX: SOL), Wesfarmers Ltd (ASX: WES), National Australia Bank Ltd (ASX: NAB), MFF Capital Investments Ltd (ASX: MFF), Telstra Group Ltd (ASX: TLS), and Endeavour Group Ltd (ASX: EDV).

Collectively, I hope these companies will be half as kind to me in terms of generating passive income as Buffett's investments have been to him.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Sebastian Bowen has positions in American Express, Apple, Berkshire Hathaway, Coca-Cola, Endeavour Group, Kraft Heinz, MFF Capital Investments, National Australia Bank, Telstra Group, Wesfarmers, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Apple, Bank of America, Berkshire Hathaway, Chevron, Kraft Heinz, and Occidental Petroleum. The Motley Fool Australia has recommended Apple, Berkshire Hathaway, Telstra Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

A woman in a bright yellow jumper looks happily at her yellow piggy bank representing bank dividends and in particular the CBA dividend
Bank Shares

If I invest $10,000 in CBA shares, how much passive income will I receive in 2024?

Is this banking option a good option for income investors?

Read more »

Young businesswoman sitting in kitchen and working on laptop.
Dividend Investing

3 ASX 200 income shares to buy now

Brokers are expecting some great yields from these income options.

Read more »

A woman in a hammock on her laptop and drinking a smoothie
How to invest

How can I invest for passive income?

I think ASX shares are the best path to a second income.

Read more »

Three generations of male family members enjoy the company as they plan future financial goals together on a trek outdoors.
Dividend Investing

A $5 ASX dividend stock to buy now for 'very attractive' passive income

There are a number of high-quality ASX dividend shares to tap for passive income, but not many trade for only…

Read more »

Smiling woman with her head and arm on a desk holding $100 notes out, symbolising dividends.
Dividend Investing

Analysts expect big yields from these ASX dividend stocks

Big yields could be coming for owners of these shares.

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
Dividend Investing

Get a second income from these ASX 200 dividend shares

These big name dividend shares could be quality options according to analysts.

Read more »

A woman has a thoughtful look on her face as she studies a fan of Australian 20 dollar bills she is holding on one hand while he rest her other hand on her chin in thought.
Dividend Investing

Should I buy Woodside shares for the 12% dividend yield?

Is a near-12% yield too good to be true?

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Dividend Investing

Experts say these ASX dividend stocks are buys

Analysts are saying good things about these stocks for income investors.

Read more »