Receiving ASX passive income can be very rewarding because of how simple it is for the cash flow to hit the bank account every year. Depending on how much we invest and the dividend yield, investors can get an average of $100 per month, $1,000 per month or even more.
Most businesses try to make a profit every year and companies can decide how much of that profit to pay to shareholders each year as a dividend.
Some companies have been able to grow their earnings significantly over the years, leading to a substantial increase in the dividend payout.
Where I'd invest for ASX passive income
I believe investing should be done with a long-term mindset. It doesn't necessarily matter what dividend yield a stock pays this year if there's going to be a large cut next year. Ideally, I'd want to choose investments that seem like they can grow their earnings and increase the payouts in the coming years.
Some businesses have already built a record of steady ASX passive income growth and still have plenty of growth potential, in my opinion.
For example, Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) has grown its annual dividend every year since 2000.
Collins Foods Ltd (ASX: CKF) has grown its annual dividend every year since 2014.
Universal Store Holdings Ltd (ASX: UNI) has grown its dividend each year since it started paying one in 2021.
Brickworks Limited (ASX: BKW) has grown its dividend every year since 2014.
Propel Funeral Partners Ltd (ASX: PFP) has increased its annual payout each year since 2021.
Wesfarmers Ltd (ASX: WES) has grown its annual dividend each year since 2021.
I believe each of these businesses is capable of growing their dividend every year for the next five years. Growing earnings can help deliver share price growth because investors are usually willing to pay more for a business that's earning more.
I also regularly write about some higher-yield ASX dividend shares, though businesses with a higher dividend payout ratio are less likely to grow their payouts consistently.
How to make $1,000 of dividends per month
Australians have the benefit of receiving franking credits, which can boost the after-tax dividend yield for investors.
To receive an average of $1,000 per month of ASX passive income, we're talking about $12,000 per year. That's a lot of dividends, but it's certainly possible for most people to build up to that amount, thanks to compounding.
If someone's portfolio had a 5% dividend yield, it would need a portfolio value of $240,000. If it had a 4% dividend yield, it would require a portfolio value of $300,000.
How long could it take to reach that amount? If someone invested $1,000 per month and it returned an average of 10% (including re-investing dividends), it'd take around 11 years to reach approximately $240,000, and it'd take 15 years to reach $300,000.
