How I'm building passive income of $100k a year with ASX shares

This is my plan to build a huge amount of investment cash flow.

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A couple lying down and laughing, symbolising passive income.

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Passive income is really appealing to me because of how easy it is to rake in more with little effort. I have a very, very long way to go to reach $100,000 of passive income, but that's my ultra-long-term goal.

Aussies get an added bonus of franking credits because of the after-tax boost it gives with dividend income when an Australian tax resident does their tax return.

Why dividend income?

I like dividend income for a few different reasons.

Dividend payments are generally less volatile than share prices, so I think it's easier to be unperturbed by times of market stress.

When businesses make a profit, they can share that profit with investors in the form of dividends. I like this because I can benefit from the profit growth without having to sell shares.

Owning ASX dividend shares over the long term can reduce the amount of capital gains tax if I don't need to sell any shares.

Over the years, businesses can self-fund the growth of their dividends and this can lead to a growing stream of passive income.  

My plan to reach $100,000 of passive income

I don't have a set plan to reach the goal in any particular time period. It's hard to accurately predict what my finances in 2025 (or beyond) will look like, and it's also impossible to say what dividend payments businesses are going to pay because the board of directors of those companies decide the payouts, and probably haven't decided yet.

Having said that, my process with my personal finances is to invest leftover savings each month into ASX shares that I think can deliver appealing long-term (earnings) growth, which will hopefully lead to dividend growth.

I'm mostly aiming my investment money at ASX shares that have an implied goal, or history, of growing dividends. Organic growth of the dividend payments can help deliver my goals without me needing to fund all of the passive income growth myself by adding more funds.

For example, Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) has grown its annual ordinary dividend every year since 2000. In FY23, it grew its dividend by 20.8% to 87 cents per share.

Other ASX shares I own which have regularly increased their dividends include Brickworks Limited (ASX: BKW), Duxton Water Ltd (ASX: D2O) and Rural Funds Group (ASX: RFF).

I'm not necessarily saying it's the best time to buy any of these ASX shares, but they are the sorts of names I've gone for with their long-term asset growth and higher payouts.

It'll be many years before I reach my goal, but if I can keep investing in businesses with long-term outlooks then I believe I'll eventually get there. Even if I only get halfway, that'll be a very nice portfolio value. A 5% dividend yield and getting $50,000 per year would be a portfolio value of $1 million.

Motley Fool contributor Tristan Harrison has positions in Brickworks, Duxton Water, Rural Funds Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks, Rural Funds Group, and Washington H. Soul Pattinson and Company Limited. 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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