Receiving passive income from ASX shares in the form of dividends is the end goal of most ASX investors.
Even if you're not seeking to maximise your dividend income today, chances are you are hoping that your ASX share portfolio will one day let you retire comfortably by providing you with a stream of (preferably fully franked) passive dividend income.
That's certainly the case with my own stock portfolio.
I've been investing in ASX shares for many years now, and have been fortunate enough to build up a decent portfolio. I do receive some dividends from this portfolio, but not a meaningful stream.
Many of my largest investments are in companies that produce limited or no income. That includes Tesla, Amazon, Apple and Duolingo.
In fact, a recent analysis of my share portfolio informed me that its dividend yield is sitting at an unimpressive 1.9% or so.
This doesn't bother me. I would love to be in a position to retire tomorrow, but the reality is that I'm a long way from being there (sorry, you'll have to keep reading my articles for a while yet). As such, I am comfortable that my portfolio is (hopefully) structured to maximise overall returns rather than just a hefty stream of dividend income.
However, that doesn't mean I'm not trying to grow my dividend income meaningfully. As long as an investment offers a healthy growth runway, I will happily accept any dividend income it pays me.
In fact, I hope to earn $20,000 in annual dividend income from my ASX shares within the next few years.
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Getting to $20,000 in annual passive income
If I wished, I could sell all of my investments, put the proceeds into bank stocks and other big dividend payers, and probably get close to $20k a year in dividend income today. However, I think I'll be far better off in the long run by sticking to my current strategy of investing in companies that offer growth as well as income.
To hit this $20k goal, I am investing in a handful of ASX shares that have demonstrated an ability to rapidly raise their dividend payments every year and look likely to be able to continue to do so.
Continued investment and reinvestment of dividends, alongside regular dividend increases from the companies themselves, is how I'll (eventually) get there.
The investments I've prioritised for this endeavour include Washington H. Soul Pattinson and Co Ltd (ASX: SOL), Mastercard, Visa, Microsoft, Meta Platforms and Alphabet.
Let's use Soul Patts as an example. For one, this company has increased its annual dividend every year for almost 25 years. But over the past three financial years (FY22-24), its dividend has increased at an average compounded annual rate of 15.3%.
If this growth continues for the next three years and beyond, it will do a lot of the legwork in boosting my portfolio's income.
I have also recently established positions in American exchange-traded funds (ETFs) that prioritise selecting companies that have shown healthy dividend growth in the past. These include the Schwab US Dividend Equity ETF (NYSE: SCHD) and the iShares Core Dividend Growth ETF (NYSE: DGRO).
By continuously investing in these top-tier investments, I am hoping that my annual dividend income will continue to snowball and hit $20,000 per year in the next few years. I'll let you know how it goes.
