Investing in ASX shares for dividends is one of the best ways, in my view at least, of starting a stream of passive income.
The dividends and franking credits that ASX dividend shares payout can provide a stable, inflation-resistant and future-proof second income for any Australian.
But investing in ASX dividend shares is of course not without risk. This includes dividend investing. Many would-be dividend investors have bought what looks like high-yield shares, only to get burned when those shares end up being dividend traps that cut their shareholder payouts down the road.
So how would one invest $20,000 into ASX dividend shares in order to secure $1,400 per year in reliable dividend income?
No ASX shares can be thought of as truly safe, for income investors or otherwise. Saying that, I think using these five income payers gives any investor a good shot at a reliable stream of passive income for the foreseeable future.
5 ASX dividend shares I would buy for $1,400 in annual passive income
I would start with Coles Group Ltd (ASX: COL). Coles is a supermarket operator we would all be fairly familiar with. Since listing on the ASX in 2018, Coles has built up a strong dividend track record, increasing its annual payout most years since then. That includes over the pandemic. As well as the high inflation years of 2022 and 2023.
Today, Coles shares offer a trailing dividend yield of 4%, which comes fully franked too.
Next up, there's Transurban Group (ASX: TCL). If you live in one of Australia's major cities, in particular Sydney, you would be intimately familiar with the toll roads that Transurban operates. This company has been remarkably successful in negotiating inflation-proof quarterly toll rises for most of its roads.
This gives the dividend income Transurban forks out notable resilience and stability. Right now, Transurban shares are trading on a dividend yield of 4.78%.
BHP Group Ltd (ASX: BHP) is our next divided stock worth discussing. BHP is one of the largest miners in the world and has extensive operations in iron ore, copper and other industrial commodities. As a mining company, BHP has a far more volatile track record when it comes to paying dividends.
However, they are usually substantial, regardless of the pricing cycle the company happens to be in. Today, BHP is sitting on a trailing (and fully franked) dividend yield of 5.97%.
A bank and a telco for passive income
It would be hard to build a robust ASX dividend portfolio without at least one ASX bank share. So ANZ Group Holdings Ltd (ASX: ANZ) makes the cut too. Like its ASX banking stablemates, ANZ has been forking out generous and fully franked dividends for decades. 2023 was a bumper year for this bank, with ANZ forking out the highest annual dividend since 2015 at $1.75 per share.
Despite a recent share price surge, ANZ is still trading on a dividend yield of 6.10%.
Finally, I would include ASX telco Telstra Group Ltd (ASX: TLS). Like the banks, Telstra is another famous passive income payer. Investors have been treated to a rising dividend from this company for the past two years after a long period of income stagnation. Telstra offers similar traits to that of Coles or Transurban in my view.
Its business is extraordinarily resilient to economic maladies and should enable Telstra investors to feel relatively comfortable in receiving regular dividend income going forward. Right now, Telstra shares are offering up a dividend yield of 4.51%. That's replete with full franking credits.
What's next?
The more mathematically minded readers might notice that these five shares aren't enough to bank $1,400 in annual dividend income from a $20,000 investment. Let's assume an investor puts $4,000 into each of these five shares. At their stated dividend yields, this would only get us approximately $995.60 in annual dividend income today. Obviously well off our target of $1,400.
Well, I think that's unfortunately unavoidable from a $20,000 investment. In order to get an immediate $1,000 in dividend income from a $20,000 investment, we would need to invest in a basket of ASX shares that are all currently yielding above 7%.
Most shares currently trading on yields of this magnitude arguably don't qualify as reliable income payers. At least for our purposes. However, I do believe that if an investor holds these five shares for a number of years, the dividend income will eventually grow to $1,400 per annum and beyond.
