For many investors, the goal of buying ASX shares is simple: to generate a steady stream of passive income.
Dividends can provide reliable cash flow, and when managed wisely, they can form the foundation of a long-term wealth-building strategy.
So, what could $100,000 invested in dividend-paying shares deliver today?
Understanding a dividend yield
Dividend yield is the annual dividend a company pays divided by its share price. For example, if a stock trades at $10 and pays a 50 cents per share dividend, it has a yield of 5%. This figure gives investors a quick way to estimate the cash income they will receive from their investment.
With an average yield of around 5%, a $100,000 portfolio of ASX dividend shares could generate approximately $5,000 a year in income — or the equivalent of just over $400 a month.
Which ASX shares could deliver it?
There's no shortage of options for investors looking for income on the ASX. APA Group (ASX: APA), which operates one of Australia's largest energy infrastructure portfolios, offers a yield around 6% with distributions largely linked to inflation.
Agricultural landlord Rural Funds Group (ASX: RFF) also provides a healthy yield, supported by long-term leases across farms and orchards. Meanwhile, Accent Group Ltd (ASX: AX1), which owns retail brands like Platypus and Hype DC, has proven it can deliver attractive fully franked dividends thanks to its strong retail footprint.
Other well-known income plays include Telstra Group Ltd (ASX: TLS), Coles Group Ltd (ASX: COL), and the big four banks, which collectively distribute billions in dividends each year. A diversified mix of these names can provide both stability and growth.
How income can grow over time
The beauty of dividend investing is that payouts are not static. As ASX shares grow their earnings, they often increase their dividends. That means a portfolio yielding 5% today could generate more passive income in the future, even without adding new capital.
This effect compounds if you don't need the income straight away. By reinvesting dividends, investors buy more shares, which in turn generate even more dividends next time around. Over a decade or two, this snowball effect can make a dramatic difference.
Don't forget franking credits
Many ASX shares pay franked dividends, which come with tax credits reflecting the corporate tax already paid.
For investors, this can significantly boost after-tax income, particularly for retirees on lower tax rates. It is a unique benefit of the Australian share market that makes dividend investing especially attractive.
Foolish takeaway
A $100,000 investment in ASX dividend shares could deliver around $5,000 a year in income at today's yields, with the potential for that income to grow over time as dividends rise and reinvestment compounds. Add in the advantage of franking credits, and the case for dividend investing looks even stronger.
For investors aiming to build passive income, the combination of reliable payers like APA Group, Rural Funds, Accent Group, and other ASX stalwarts could make $100,000 work harder both now and well into the future.
