One of the best benefits of owning ASX dividend shares is the passive income stream they can produce. Not all ASX stocks pay dividends, of course. And many of those that do can be unreliable when it comes to paying out income to shareholders. But there are still plenty of ASX stocks out there that have built up a well-earned reputation as dependable providers of dividend income.
So today, let's discuss five of those stocks, ones that I think would be fantastic choices to build a passive income portfolio around, and ones that could potentially pay $1,000 a month in dividend cash flow.
It's my view that the best ASX dividend shares to buy for reliable passive income are those that are good at providing goods and services that we find difficult to live without.
That's why our first three passive income stocks are National Australia Bank Ltd (ASX: NAB), Telstra Group Ltd (ASX: TLS), and Coles Group Ltd (ASX: COL).
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Keep it simple, silly
All three of these shares have a stellar track record when it comes to funding fat, and fully-franked dividends.
Starting with NAB, this is one of the famous big four ASX bank stocks, companies that are pillars of the Australian economy and have payed decades of oversized dividends to their shareholders. I prefer NAB to its big four stablemates at the moment. This is mostly thanks to its business-focused model, as opposed to the mortgage-heavy nature of its rivals. NAB also offers a relatively high dividend yield compared to its peers, at 3.92% at the time of writing.
Telstra is also a dividend legend on the ASX, with decades of funding large, fully-franked dividends also under its belt. Telstra is, by far, the most dominant telco in Australia, with a clear lead in market share across both mobile and fixed-line telecommunications. In our modern world, phones and internet access are more of a need than a want, making Telstra a very valuable addition to an income portfolio. This telco, at the time of writing, is trading on a dividend yield of 3.88%.
Coles is another stock in a similar vein to that of Telstra. This supermarket operator has an entrenched position in its sector, which is well-known for its resilience towards economic maladies like inflation and recessions. We all need to eat and regularly stock our households with life essentials, after all. Coles shares are trading on a fully franked dividend yield of 2.92% at the time of writing.
Some diversity picks for our ASX passive income portfolio
Any five-stock portfolio has an inherent diversification problem. That's why our final two ASX passive income stocks, Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and MFF Capital Investments Ltd (ASX: MFF), are important additions.
Washington H. Soul Pattinson, or Soul Patts for short, is an investing house that manages a vast underlying portfolio on behalf of its shareholders. This portfolio includes a wide range of other ASX blue-chip stocks, as well as property and other unlisted assets.
This company has beaten the broader ASX stock market for decades, and also has one of the best passive income track records on the ASX. Its shareholders have enjoyed an annual dividend increase every year since 1998 – a feat no other ASX stock can match. Soul Patts is sporting a dividend yield of 2.55% at the time of writing, which comes fully franked too.
MFF Capital Investments is a similarly structured company. This listed investment company (LIC) also owns and operates a portfolio of underlying stocks. But instead of Australian-domiciled assets, most of MFF's portfolio is US stocks – again a win for our passive income portfolio's diversification. MFF follows a Warren Buffett-inspired strategy of buying high-quality businesses at compelling prices, and holding them for the long term. Some of its largest positions include Amazon, Mastercard, American Express, and Visa.
Despite this predilection for low-yield US shares, MFF is no slouch when it comes to passive income. It has been increasing its dividends at a rapid clip in recent years, and trades on a fully-franked yield of 3.55% at the time of writing.
Foolish Takeaway
I think these five passive income stocks are some of the best the ASX has to offer. How soon you can achieve an income stream of $1,000 a month would depend on how much capital you have to invest upfront, of course. However, all five of these companies have exciting diversified track records. No matter how much you have to start with, diligently investing as much as you can, as soon as you can, will get you there (at least in my view).
