How to earn $1,900 in passive income with just $10,000 in savings

Got $10,000 in savings and looking to turn that into a $1,900 annual passive income stream?

That may sound like a lofty goal. But it's quite achievable if you invest in the right basket of ASX dividend shares.

Now to get $1,900 a year in extra income from an initial $10,000 investment implies a 19% dividend yield. So, barring a stroke of excellent good fortune, you're unlikely to achieve that in year one.

But by tapping into the power of compounding you could be enjoying that passive income landing in your bank account sooner than you may think.

Below, we'll look at three top ASX dividend stocks you might wish to consider. But do keep in mind that a properly diversified portfolio will hold more than just three stocks. While there's no magic number, 10 is a decent yardstick. That will help to lower the overall risk of your ASX dividend portfolio.

Also, remember that the yields you 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 said…

Three ASX dividend stocks for passive income

The first company I'd buy for passive income is the S&P/ASX 200 Index (ASX: XJO) bank stock Australia and New Zealand Banking Group Ltd (ASX: ANZ).

ANZ paid a partly franked final dividend of 94 cents per share on 22 December and will pay the interim dividend of 83 cents per share on 1 July. The ASX 200 bank stock traded ex-dividend on 13 May, so we're a bit late to score that payout.

With a full-year payout of $1.77 a share, ANZ trades on a partly franked trailing yield of 6.1% at Friday's closing price of $29.18. The ANZ share price is up 28% in 12 months.

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

Over the past 12 months, Yancoal has paid two fully franked dividends, totalling 69.5 cents a share. At Friday's closing price of $6.27 a share, Yancoal trades on a fully franked trailing yield of 11.1%. The Yancoal share price is up 39% in 12 months.

And the third dividend stock I'd buy for passive income is ASX 200 mining giant Fortescue Metals Group Ltd (ASX: FMG).

Fortescue shares delivered a fully franked final dividend of $1.00 a share on 28 September and an interim dividend of $1.08 a share on 27 March for a 12-month payout of $2.08 a share.

At Friday's closing price of $24.37, Fortescue shares trade on a fully franked trailing yield of 8.5%. The Fortescue share price is up 21% in 12 months.

So, how long will it take before we can sit back and enjoy $1,900 a year in passive income without touching or initial capital investment?

To the maths!

Assuming you buy an equal number of each of these three ASX dividend stocks, you could expect to earn a yield of 8.6%.

That would see your $10,000 of invested savings return $860 a year in passive income. Or slightly less than half our goal of $1,900.

With an 8.6% yield, you'll need to build that investment up to $22,093 before you can withdraw $1,900 a year without drawing down that capital.

Which means you'll need to be a bit patient and reinvest those dividends at first.

Now atop the dividends, I'd also expect Fortescue, Yancoal and ANZ to continue to deliver share price gains over time. However, I wouldn't expect them to deliver the same kinds of outsized gains they have over the past 12 months. But I think that an accumulated annual gain (dividends plus share price appreciation) of 10% is realistic, if not conservative.

Tapping into the power of compound interest, that would see your initial $10,000 in savings grow to $22,182 in eight years.

Then, you can sit back and enjoy an extra $1,907 in annual passive income.