Invest $12,000 in Woodside stock and get $5,700 in passive income

Reliable dividend shares are everywhere on the ASX. Here's how you could use that to your advantage.

| More on:
A happy construction worker or miner holds a fistfull of Australian money, indicating a dividends windfall

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

It may surprise the average punter, but only $12,000 can send you on your way to receiving thousands of dollars of annual passive income.

Allow me to use reliable ASX dividend stock Woodside Energy Group Ltd (ASX: WDS) as an example.

Put a little bit on Woodside stock

Assume that you use your $12,000 to buy a batch of Woodside shares.

Currently 10 out of 17 analysts surveyed on broking platform CMC Invest reckons the ASX energy giant is a buy.

We all know past performance is never an indicator of the future. But just to demonstrate the power of compounding, let's use the numbers we have.

Woodside shares currently hand out an excellent 7.1% fully franked dividend yield.

Then conservatively assume there will be zero capital gain in the coming years, and that the distributions are the only source of returns.

If you can keep those shares growing at 7.1% per year while adding in $400 monthly, chunky passive income is not too far away.

Then reinvest for 9 years

Nine years of that investment regime will see the nest egg grow to $79,981.

After that, instead of reinvesting the dividends, just put the cash in your bank account.

That means from that point you pocket an average of $5,678 of passive income each year.

How good is that!

The point of this hypothetical was to show how starting with just a small amount to invest can quickly grow to an income generating machine.

In reality, you will want to diversify your portfolio, rather than buy only Woodside shares.

Fortunately, there are plenty of excellent shares out there that can deliver you a 7% yield, or 7% growth — or even more.

And don't forget, the above scenario was based on your shares not seeing any capital gains over those nine years.

If you manage the portfolio properly, that will also be unlikely.

Good luck out there.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

A happy construction worker or miner holds a fistfull of Australian money, indicating a dividends windfall
Energy Shares

Own Woodside shares? Today is payday!

Woodside is set to reward passive income investors today.

Read more »

Woman holding $50 and $20 notes.
Dividend Investing

5 excellent ASX dividend stocks to buy in April

Analysts have put buy ratings on these income options recently.

Read more »

Woman with $50 notes in her hand thinking, symbolising dividends.
Dividend Investing

Should ASX investors buy Metcash stock for its 5.7% dividend?

Here's my take on Metcash's current dividend yield.

Read more »

Hand of a woman carrying a bag of money, representing the concept of saving money or earning dividends.
Dividend Investing

These ASX 300 dividend shares offer yields of 5% to 8%

Analysts think big yields could be coming for owners of these shares.

Read more »

Excited woman holding out $100 notes, symbolising dividends.
Dividend Investing

Passive income investors, beat the ASX with this cash-gushing dividend stock!

I believe this top ASX dividend stock will continue to offer ASX beating passive income.

Read more »

a hand reaches out with australian banknotes of various denominations fanned out.
Dividend Investing

Here are the top five ASX 200 stocks in Macquarie's model income portfolio

Income investors might want to check out this model portfolio.

Read more »

pair of scissors cutting one hundred dollar note representing cut dividend
Resources Shares

Are your big ASX 200 mining dividends in for a chop?

Are the appealing dividends about to come to an end?

Read more »

Woman with headphones on relaxing and looking at her phone happily.
Dividend Investing

Why I think these 2 ASX dividend shares are ideal for income investors

I’d choose these stocks for a strong dividend portfolio.

Read more »