If you're looking for a source of passive income, then Challenger Ltd (ASX: CGF) may come to mind.
As a leading provider of annuities, many Australian income investors use the company's offering to boost their income.
But could Challenger shares be even better?
Let's see how much passive income an $8,000 investment in the company's shares could provide in 2024.
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Passive income from Challenger shares
Firstly, with a share price of $6.77, if I were to invest $8,000 into the company's shares, I would end up owning approximately 1,182 units.
According to a note out of Goldman Sachs, its analysts are expecting the company to reward shareholders with fully franked dividends of 25 cents per share in FY 2024.
Based on its current share price, this equates to a dividend yield of 3.7% for investors.
And for my 1,182 Challenger shares, it would mean passive income of $295.50 for 2024.
Though, it is worth noting that it is unfortunately too late for Challenger's interim dividend for FY 2024. The rights to that dividend are locked in and it will be paid to eligible shareholders next week on 19 March.
But don't worry because there's more income on the horizon.
Goldman is expecting a 26 cents per share fully franked dividend in FY 2025. This equates to a 3.85% dividend yield and would provide me with income of $307.32.
Capital gains
While the yields on offer with Challenger's annuities of approximately 4.9% may be superior to the dividend yields from its shares, they don't offer capital gain potential.
Goldman Sachs currently has a buy rating and $7.50 price target on Challenger's shares.
If they were to reach that level, it would give my 1,182 shares a market value of $8,865. That's $865 more than I paid.
And if I throw in the ~$300 of dividends expected over the next 12 months, I would have a total return of approximately $1,165 if everything went to plan.
