Building up a stream of passive income using ASX shares sounds like a complicated endeavour. Dividends, franking credits, yields… The jargon surrounding the stock market can be a little overwhelming for new investors.
But the reality is that getting a second source of income from the stock market isn't as complicated as it might first sound. In fact, it can be a relatively simple journey if you want it to be.
Today, I'll demonstrate how.
You only need one ASX investment to generate a stream of passive income. That's one ticker code, one holding to manage, and one stock to receive dividend income from.
The ASX investment we'll be using is an exchange-traded fund (ETF) called the Vanguard Australian Shares High Yield ETF (ASX: VHY).
ETFs are investments that usually hold a bunch of other stocks within them. In this case, we have around 65 different ASX dividend shares. These are selected based on both the income available from investing today and their income potential in the future.
So right off the bat, we have a diversified portfolio of different ASX dividend shares. These range from banks like Commonwealth Bank of Australia (ASX: CBA) to dividend favourites like Telstra Group Ltd (ASX: TLS) and Woodside Energy Group Ltd (ASX: WDS).
In this way, an ETF like VHY is a great choice for anyone wanting a simple passive income investment from the stock market.
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How much passive income does this Vanguard ETF pay?
But let's get into the numbers. So, the Vanguard Australian Shares High Yield ETF pays out a dividend distribution every three months. Over the past year, the four quarterly dividend payments that this ETF has made total $3.98 for every unit of this ETF owned.
At recent pricing, VHY units were going for $73.49 each, meaning that those dividend payments amount to a yield of 5.41%.
Now, buying this ETF today won't guarantee that you get $5.41 in dividends back every year for every $100 invested. Since there are so many divided shares within this ETF's portfolio, its quarterly payments can vary based on what kind of dividends the companies themselves are paying.
However, given the nature of this ETF's construction, investors can reasonably assume they will be getting a competitive dividend yield compared to the overall stock market's performance.
If you start buying this ETF, and regularly spend, let's say $200 a month, building up your position, it won't take too long for a healthy passive income stream to take shape.
