ASX dividend shares with a good dividend yield could be the ticket to retiring.
Most people love the idea of being able to just live off dividend income, but the tricky part is knowing how much we need.
If we had a portfolio with a 2% dividend yield, it would take $2 million to get $40,000 in annual dividend income.
But, by using ASX dividend shares with high dividend yields, we can significantly reduce how much money is needed, if we choose well.
High-yield ASX dividend shares can work
I wouldn't just go for the highest-yield ASX dividend shares if they don't have a good future. A dividend stock isn't just a one-year investment. Ideally, it's meant to be for many years.
The right strategy, in my opinion, is to go for businesses that are likely to be able to grow their payouts pleasingly over future years.
What sort of businesses have good yields and could deliver growth in the future?
I like the look of names like GQG Partners Inc (ASX: GQG), Metcash Ltd (ASX: MTS) and Charter Hall Long WALE REIT (ASX: CLW). A diversified portfolio should have more than three individual stock names, but the three I've mentioned could be a good starting point.
According to Commsec, the average (grossed-up) dividend yield for 2024 of the three stocks I mentioned is projected to be 7.9%.
With a yield of 7.9%, investors could get a grossed-up annual dividend income of around $40,000 from ASX dividend shares. In some places in Australia, that may be enough, though the dividends can also be supplemented by interest, pension payments and other forms of income in retirement.
To build up to half a million dollars, I'd suggest either investing for capital growth up until retirement and then adjusting the portfolio for dividends or reinvesting dividends from ASX dividend shares until the desired goal(s) are reached.
If we choose the right stocks, year one of retirement could pay $40,000 and year two could see a larger amount of dividends.
