I'd need this many Lovisa shares to aim for passive income of $10k a year

The jewellery retailer is in a unique category in the ASX, so this is how you can take advantage to build your wealth.

| More on:
A young woman wearing a silver bracelet raises her sunglasses in amazement, indicating positive share price movement in jewellery shares.

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

Lovisa Holdings Ltd (ASX: LOV) is in select company on the ASX in that it can be considered both a growth and dividend stock.

The share price has now returned a whopping 164% over the past five years, and just a few weeks ago in late November the dividend yield was up at 3.8%.

The stock price has rocketed 42% since then so the yield has admittedly moderated to 2.6%. Nevertheless, the jewellery retailer has a consistent history of paying out in recent years.

Now, what if I told you that you could earn a passive income of $10,000 each year using Lovisa shares?

Outstanding ASX stock with explosive compounding

Of course, The Motley Fool always encourages investors to diversify their portfolios to reduce risk.

So this single stock example is to demonstrate the wealth-building power of ASX shares through compounding, rather than to prompt you to put all your money in Lovisa.

Let's assume you had $20,000 to start with, which is reportedly about half the average level of savings for an Australian.

That will buy you around 782 Lovisa shares at the moment.

Over the last five years, the retailer stock has averaged a compound annual growth rate (CAGR) of 21.4%, excluding dividends.

If we add the current 2.6% dividend yield to that, the yearly growth rate becomes 24%.

A handful of shares + time = passive income

Check out how awesome your 782 shares could do if you reinvested all those returns each year.

After just four years, the pot will have grown to $47,284.

From then on, if you stop reinvesting the annual returns and start cashing it in instead, you have yourself a handy five-digit passive income.

That's $11,348, to be precise.

Just 782 Lovisa shares and 48 months. That's all it took.

Notwithstanding the sharp run-up in the stock price, Lovisa is still well-liked among professional investors.

Broking platform CMC Invest currently shows eight out of 13 analysts recommending the retail stock as a buy.

Motley Fool contributor Tony Yoo has positions in Lovisa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa. The Motley Fool Australia has recommended Lovisa. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

Woman calculating dividends on calculator and working on a laptop.
Dividend Investing

3 ASX 300 dividend stocks to buy now for income

Brokers think these dividend stocks are buys right now. What sort of yields are they forecasting?

Read more »

Stressed thoughtful old female general practitioner doctor physician looking in distance, considering difficult medical problem solution or illness treatment, working on computer in clinic office.
Healthcare Shares

How much do you need to invest in CSL shares for $8,000 in annual dividends?

CSL's dividends are exponentially more valuable for long-term investors.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Dividend Investing

Why is the Soul Patts share price falling today?

Is today's decline actually good news?

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

Is Telstra stock a smart buy right now for dividends?

Would I buy Telstra shares for that hefty dividend yield today?

Read more »

Three women cruise along enjoying ice-creams in the sunshine.
Dividend Investing

The best dividend stocks in Australia right now

Growth and stability are just two of the reasons why I think these are the top ASX 300 stocks for…

Read more »

Man drawing an upward line on a bar graph symbolising a rising share price.
Growth Shares

These ASX 200 growth shares could rise 12% to 30%

Analysts think big returns could be on offer from these shares.

Read more »

Man holding a calculator with Australian dollar notes, symbolising dividends.
Dividend Investing

Buy these ASX dividend shares with 6% to 8% yields: Bell Potter

Big yields could be coming for owners of these shares.

Read more »

Man in an office celebrates at he crosses a finish line before his colleagues.
Growth Shares

Hoping to beat the ASX 200? I'd consider buying these 3 ASX shares

Analysts think these shares can outperform the market.

Read more »