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:
- Occidental Petroleum Corp (NYSE: OXY)
- Bank of America Corp (NYSE: BAC)
- Apple Inc (NASDAQ: AAPL)
- Chevron Corporation (NYSE: CVX)
- Coca-Cola Co (NYSE: KO)
- Kraft Heinz Co (NASDAQ: KHC)
- American Express Company (NYSE: AXP)
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.