An ASX share portfolio paying $2,000 a month in passive income may not be enough to quit your day job.
But if you're like me, an extra $24,000 a year landing in your bank account would sure come in handy!
With that goal in mind, just how much would I need in an ASX share portfolio to earn that kind of passive income?
Let's dig in.
Franking credits, diversification and trailing yields with passive income
Before we look at some specific, high-yielding S&P/ASX 200 Index (ASX: XJO) dividend stocks, and how much we'll need to invest for a $2,000 monthly passive income stream, a few important points.
First, when looking at dividend stocks, franking credits matter. These will give you credit for the taxes the company you've invested in has already paid on its profits. With franked dividends, many investors will find they can hold onto much more of that dividend income when it comes time to pay their own taxes.
Second, while we'll look at four ASX 200 dividend stocks below, an ideal passive income portfolio will contain more. There's no precise figure, but 10 is a decent target. Ideally, these will operate in different sectors and locations. This will help lower the overall risk of your ASX share portfolio taking a big hit if any single company or sector hits a rough patch.
And third, 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, the four ASX 200 stocks below do each operate in distinct sectors. They do offer full or partial franking credits. And while the future is uncertain, I believe they are all well-placed to continue paying out dividends at the higher end of the scale.
Tapping ASX dividend shares for $2,000 a month in passive income
The first stock I'd add to my share portfolio to build passive income is ASX 200 coal miner New Hope Corp Ltd (ASX: NHC).
Over the past 12 months New Hope has paid out 39 cents a share in fully franked dividends. At yesterday's closing price of $4.93, New Hope trades on a trailing dividend yield of 7.9%.
Next up, we have ASX 200 bank stock ANZ Group Holdings Ltd (ASX: ANZ).
ANZ has paid out $1.66 a share in partly franked dividends in the last year. At yesterday's closing price of $29.98, ANZ trades on a trailing dividend yield of 5.5%.
The third company I'd add to my share portfolio for passive income is ASX 200 electronics and furniture retailer Harvey Norman Holdings Ltd (ASX: HVN).
Harvey Norman delivered 22 cents a share in fully franked dividends over the last 12 months. At yesterday's closing price of $4.66, this gives Harvey Norman shares a trailing dividend yield of 4.7%.
And finally, we have ASX 200 mining giant Fortescue Ltd (ASX: FMG).
Fortescue paid two fully franked dividends totalling $1.97 a share over the last year. At yesterday's closing price of $18.89, Fortescue shares trade on a trailing dividend yield of 10.4%.
So, how much would I need to invest for my $2,000 a month in passive income?
To the maths!
If I invested an equal amount in each of the above ASX 200 dividend stocks, I could expect to earn an average (mostly franked) yield of 7.13%.
To earn $2,000 a month in passive income (or $24,000 a year), I'd need to invest $336,606 in an ASX share portfolio.
Now, that's obviously a sizeable amount to invest in one go.
But that's okay. Investing is a long game.
I can also regularly invest a smaller amount, and I'll reach my passive income goal in good time.
