The right portfolio of ASX passive income shares can offer a big boost to your retirement lifestyle.
And the sooner you start building up that income portfolio, the bigger that boost is likely to be.
If you're 30 and aim to retire at 67, that gives you 37 years to invest in ASX dividend stocks.
You'll want to pay special attention to companies that pay franked dividends. This gives you credit for the corporate taxes the companies have already paid on their profits. And it means you may be able to hold onto a lot more of those dividends come tax time, which can make an especially big impact during retirement.
How I'd boost my retirement prospects with ASX passive income shares
There's no way around this first step.
If you're 30 and looking for a significant lifestyle boost from investing in ASX passive income shares, you'll need to start saving.
This doesn't mean you need to invest every extra dollar that comes in. But if you can set aside $500 a month to invest in the market, you'll be off to a great start.
Next, look for ASX dividend stocks that pay above-average yields and have a long history of reliable dividend payments. Do some research into their longer-term prospects to gauge the reliability of future payouts.
Remember that the yields you see quoted tend to be trailing yields. Future yields may be higher or lower depending on a range of company-specific and macroeconomic factors.
Below are three such companies you may wish to consider.
Of course, a proper income portfolio will contain more than just three stocks. There's no magic number, but 10 is a reasonable ballpark figure. Ideally, these will operate in different sectors and locations. That kind of diversity will help lower the overall risk to your investment holdings.
Three top ASX passive income shares
First up, we have WAM Capital Limited (ASX: WAM).
Shares in the asset manager are trading for $1.65 apiece at the time of writing.
Over the last 12 months, WAM Capital has paid (or shortly will) 15.6 cents a share in partly franked dividends. This sees the ASX passive income share trading on a partly franked dividend yield of 9.5%.
And you can still bank the 7.8 cents per share interim dividend, franked at 60%. WAM Capital trades ex-dividend on 16 April. So, you'll need to own shares at market close on 15 April to bank that payout.
Next up, we have the S&P/ASX 200 Index (ASX: XJO) coal stock New Hope Corp Ltd (ASX: NHC).
New Hope shares are up 9.2% today at $4.04 apiece, following the release of strong half-year results.
Over the past 12 months New Hope has paid (or shortly will) 41 cents per share in fully franked dividends. That sees the stock trading on a dividend yield of 10.2%.
The interim dividend of 19 cents per share, declared today, will be paid on 9 April. If you want to bank that payout, you'll need to own shares at market close this Friday, 21 March. New Hope shares trade ex-dividend on Monday.
Which brings us to our third ASX passive income share, energy infrastructure company APA Group (ASX: APA).
Over the past 12 months, APA Group has paid out 56.5 cents in partly franked dividends. At the current share price of $7.93, APA Group trades on a dividend yield of 7.1%.
To the maths!
If you were to invest an equal amount in each of the three ASX passive income shares above, you could expect to earn an average dividend yield of around 8.9%.
With some capital gains in mind, I think these stocks can reasonably achieve longer-term cumulative gains (meaning you're initially reinvesting those dividends) of at least 10%.
Now, this is where the magic of compound interest comes into play. And why it's important to get started on your retirement planning early.
If you're 30 and invest $500 a month, or $6,000 a year, until you aim to hang up your hat at 67, you'll have invested a total of $222,000 in ASX passive income shares.
At 10% annual returns, that portfolio will have grown to a value of $2,329,915.
At that point, you can leave that capital untouched and begin to draw off the annual passive income.
Based on today's average trailing yield of 8.9%, you should then be able to draw off $207,364 in dividends a year, which should offer a very welcome boost in those golden years!
