Where I'd invest $5,000 in ASX shares now for $1,000 of dividend income

The ASX offers a rich hunting ground for dividend income.

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Targeting $1,000 of dividend income now from ASX shares with an initial $5,000 investment would require a 20% yield.

While a few ASX stocks have delivered that kind of outsized yield on rare occasions, we're not going to shoot for the moon here.

Instead, we'll look at three top ASX dividend shares paying market-beating passive income where I'd invest that $5,000 now to achieve that $1,000 of dividend income.

Before we dive into that, though, a few important points.

First, an ideal investment portfolio should hold 10 or more ASX shares, ideally operating in different sectors and geographic locations. That kind of diversity will lower the risks of our passive income taking an unexpectedly large hit if a particular company or sector comes under pressure.

Second, the yields we generally see quoted are trailing yields. Future yields may be higher or lower depending on a range of company-specific and macroeconomic factors.

With that in mind…

Three ASX shares to buy now for dividend income

The first stock I'd buy now for dividend income is S&P/ASX 200 Index (ASX: XJO) iron ore miner Fortescue Ltd (ASX: FMG).

Fortescue paid out a final fully franked dividend of $1.00 per share on 28 September. Following a strong six-month period through to the end of 2023, the ASX 200 miner's net profit after tax (NPAT) soared 41% year on year to US$3.3 billion for the six months.

With profits up, Fortescue paid an interim dividend of $1.08 per share, up 44%, on 27 March. Which brings the full-year payout to $2.08 per share.

The Fortescue share price has also gained an impressive 17% over the past 12 months, closing yesterday at $25.78 per share. That sees the ASX 200 miner trading on a fully franked trailing yield of 8.1%.

The second company I'd buy for dividend income today is ASX coal stock Yancoal Australia Ltd (ASX: YAL).

Well-known for its market-smashing yields, Yancoal's dividends have come down from their heights of 2022 and early 2023. But its share price has held up well and amid resilient global coal demand I expect this stock will remain a favourite among passive income investors.

Yancoal paid a fully franked interim dividend of 37 cents per share on 20 September. The ASX coal miner will deliver its final dividend of 32.5 cents per share on 30 April for a 12-month payout of 69.5 cents per share.

The Yancoal share price is just about flat over the past year, closing yesterday at $5.73. That equates to a fully franked trailing yield of 12.1%.

Which brings us to the third stock I'd buy for dividend income today, Ampol Ltd (ASX: ALD).

Ampol supplies Australia's largest branded petrol and convenience network. The company also refines, imports and markets fuels and lubricants.

And in a sign I like to see, both Ampol's share price and dividends have been soaring.

On the dividend front, Ampol paid a fully franked interim dividend of 95 cents per share on 27 September. The ASX energy stock's final dividend came out at $1.80 per share, up 16%, for a full-year payout of $2.75 per share.

The Ampol share price has rocketed 26% over the past 12 months, closing yesterday at $39.09. That equates to a fully franked trailing yield of 7.0%.

The road to $1,000

Assuming we invest the same amount in each of these three ASX shares we'd earn an average yield of 9.1%.

Meaning our $5,000 investment today should see us earning $455 in annual dividend income, plus further potential share price gains.

As mentioned up top, we won't reach our $1,000 dividend income goal from these ASX shares immediately. But by tapping into the magic of compounding, a little patience can pay off handsomely.

If we reinvest those dividends, and the average share price of these three stocks continues to move higher, I believe we could realistically achieve annual returns of 12%.

In seven years, at that rate of return, we should see our $5,000 grow to $11,534. At a 9.1% yield, this would see us earning a fully franked dividend income of $1,050 a year.

As always, if you're not sure how or where to invest your hard-earned money, simply reach out for some expert advice.

Motley Fool contributor Bernd Struben 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.

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