Passive income: How I'd aim to earn an average of $500 per month with ASX shares

There are some important qualities to keep in mind when investing in ASX shares for passive income.

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A $500 monthly passive income from ASX shares might not be life-changing.

But if you're like me, that extra $6,000 a year would sure come in handy.

As I build my ASX dividend share portfolio to achieve that passive income I'd look at initially reinvesting most of those dividends to capture the power of compounding.

Over time, once that income is coming in on a regular basis, I'd likely dip into it to fund some extra luxuries, like overseas vacations.

Now, here's how I'd aim to earn an average passive income of $500 per month with ASX shares.

A $500 monthly passive income from ASX shares

Below we take a look at four specific S&P/ASX 200 Index (ASX: XJO) shares I'd consider targeting now for their lengthy track record of paying fully franked dividends.

Just take note that the yields you generally see quoted are trailing yields. Future yields may be higher or lower, depending on a range of company-specific and macroeconomic factors.

Keeping that in mind, I'd eventually aim for an ASX share portfolio with around 10 quality dividend stocks to help smooth out the returns. I'd also invest across different sectors, reducing the risk that my passive income stream takes a big hit if any particular sector hits some turbulence.

With that said, the first stock I'd target is ASX 200 financial stock Commonwealth Bank of Australia (ASX: CBA).

Australia's biggest bank ticks all of my prerequisite boxes as a reliable, long-term dividend payer.

Over the past 12 months, CBA has delivered a total of $4.50 per share in fully franked dividends. At yesterday's closing price, CBA shares trade on a trailing yield of 4.4%.

The second company I'd invest in for my $500 a month in passive income is ASX 200 mining share BHP Group Ltd (ASX: BHP).

BHP has paid out a total of $2.62 per share in fully franked dividends over the past full year. That equates to a trailing yield of 5.6%.

Keeping my investments in different sectors, I'd then look at ASX 200 retail stock Harvey Norman Holdings Ltd (ASX: HVN).

Harvey Norman stock has delivered a total of 25 cents per share in fully franked dividends over the 12 months. At yesterday's closing price, that works out to a trailing yield of 6.6%.

Which brings us to the last of the four income stocks I'd initially target, ASX 200 energy share Woodside Energy Group Ltd (ASX: WDS).

Over the past 12 months, the oil and gas stock has paid out a total of $3.40 per share in fully franked dividends. Woodside shares currently trade on a juicy trailing yield of 10.7%.

On to the maths

If I invest an equal amount into each ASX 200 dividend stock, I'd earn an average trailing yield of 6.8%.

That means for my $500 a month in passive income (or $6,000 a year), I'd need to invest $87,912 today.

Now, that's a sizeable sum.

But as I said up top, my aim here would be to build up my ASX dividend portfolio over time, rather than investing everything in one lump sum.

With the magic of compounding working for me, I'll achieve my goal in good time.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Harvey Norman. The Motley Fool Australia has positions in and has recommended Harvey Norman. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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