Looking to build a portfolio of ASX shares to receive the highest level of sustainable passive income from dividend payments?
Receiving passive income in the form of dividends is one of the best things about investing in ASX shares. Particularly when you consider that most dividends on the ASX also come with at least some franking credits attached. After all, there's nothing quite like getting paid without having to work.
So if I were an investor with $100,000 sitting in the bank today, and I wanted a portfolio that prioritised receiving the highest level of dividend income possible, here's how I would do it.
Using our $100,000, I would start our portfolio by investing $10,000 into ten individual ASX dividend shares. All ten of these have a strong record of providing meaningful passive income, and show no signs of being in danger of delivering a significant cut to said income.
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Building a $100,000 passive income portfolio
Kicking off, I would buy two ASX bank shares. Not Commonwealth Bank of Australia (ASX: CBA), mind you, but ANZ Group Holdings Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC).
These banks are currently offering large upfront dividend yields – around 4.5% in Westpac's case, and a sizeable 5.6% or so for ANZ. Westpac's dividends typically come fully franked too, although ANZ has moved to partially-franked passive income in recent years.
The big four ASX banks are the lynchpins of the Australian financial system, and have been paying fat dividends for decades. I see no reason why this won't continue.
In addition to those banks, I would opt for an investment in Telstra Group Ltd (ASX: TLS) and Coles Group Ltd (ASX: COL). Again, these are two companies that are popular amongst passive income investors. Both stocks also have strong track records when it comes to funding fully franked dividends, and currently offer yields of between 3 and 4%.
I like these two stocks as they have highly resilient earnings bases, thanks to the essential nature of the goods and services they provide. This should help protect their dividends in the event of a recession.
Transurban Group (ASX: TCL) is in a similar boat. It owns the largest network of tolled roads in the country, which again provides a very stable pool of profits from which to fund dividends. Transurban also enjoys the right to increase its tolls on most of these roads by at least the rate of inflation, which I'm sure income investors would appreciate. This company was recently trading on a dividend yield of around 4.5%, albeit unfranked.
More dividend shares to consider
Our next two passive income stocks are from the mining and energy sectors, respectively. I've gone with the big dogs, BHP Group Ltd (ASX: BHP) and Woodside Energy Group Ltd (ASX: WDS). Both of these companies are leaders in their respective fields. BHP is one of the largest miners in the world, with significant operations in iron ore, copper, coal and potash. Meanwhile, Woodside is one of Australia's largest oil and gas producers.
Commodity companies are notoriously cyclical, meaning that they don't provide predictable profits, and by extension, dividend income. However, when the cycle turns positive, both BHP and Woodside's relatively low cost bases mean they can usually shower investors with cash (typically replete with full franking credits). To illustrate, BHP is currently trading on a trailing dividend yield close to 5%, while Woodside is on around 8%.
Adding some passive income diversification
For our final three investments, we'll be turning to some more diversified options to give our portfolio.
First up is a listed investment company (LIC) called Plato Income Maximiser Ltd (ASX: PL8). Plato holds a portfolio of underlying passive income shares, which it manages on behalf of its shareholders. It uses these to fund monthly dividends, which almost always come fully franked. On recent pricing, Plato was trading on a dividend yield of roughly 4.8%.
Adding to that, we have the Vanguard Australian Shares High Yield ETF (ASX: VHY). Although VHY is an ETF, not a LIC, it functions in a similar manner to Plato, holding an underlying portfolio of income stocks. This ETF pays out its dividend distributions quarterly. These do fluctuate, but, as it stands today, VHY is trading on a trailing yield of well over 7%.
Finally, we'll throw another LIC into the mix – MFF Capital Investments Ltd (ASX: MFF). MFF adds some much-needed international diversification to our passive income portfolio. It also holds a portfolio of underlying shares, only these are mostly US stocks. MFF has a long-term investing mindset, with many of its holdings (which include the likes of Amazon, Mastercard and Visa) held for many years.
This LIC has been ratcheting up its dividends for a while now, and recently was commanding a fully-franked yield of approximately 3.5%.
