Many ASX investors buy shares in order to start a second stream of passive income. The dividends that ASX shares can pay make stock market investing a reliable and potentially lucrative source of secondary income. But exactly how much income can you realistically receive from an ASX dividend stock? Can you really get $1,000 a year from a $5,000 investment?
Well, on the surface, that looks to be a lofty goal. Investing $5,000 to get $1,000 back in dividends every year would require one to find an ASX dividend share with a dividend yield of 20%. Seeing as most investors would regard a yield of 5% as on the more generous side, 20% is a big ask.
I'll be upfront. You are not going to get a reliable 20% yield straight up, unless you get incredibly lucky and find some under priced market gem that everyone else has overlooked.
However, not all hope is lost. A 20% yield on your capital is possible. You just need to give it some time.
To demonstrate, let's use an example of one of the ASX's best dividend growth stocks. Washington H. Soul Pattinson and Co Ltd (ASX: SOL) shares are a dividend favourite on the ASX. This investing house has the best dividend track record on our market, having increased its annual dividends every single year since 1998.
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How can ASX dividend growth stocks build a second income?
Between 2021 and 2025, Soul Patts has raised its annual payouts from 62 cents per share to $1.03. That's a compounded annual growth rate of 13.5% per annum.
Let's, for a moment, assume that this rate of dividend growth will continue indefinitely (which is by no means guaranteed). Investing $5,000 today would get you approximately 138 shares at the current price of $36.18. You would start with a trailing dividend yield of 2.96%. Based on 2025's payouts, this represents a starting cash flow of $142.14 in annual second income.
If Soul Patts increases its dividend by another 13.5% in 2026, its annual dividend would rise to $1.17 per share, meaning our second income would increase to $161.46.
This would continue to compound. By year five, we would be getting almost $236 in second income, rising to $444.30 by year ten.
Like a rolling snowball, the rate of increase gets faster and faster. We would reach our goal of $1,000 ($1,078 to be precise) in annual secondary income by year 17, and that's assuming no additional investment or dividend reinvestment. Thanks to the power of compounding, it would only take another five years for our second income to double again to over $2,000.
Investing additional amounts, or reinvesting dividends each year (or both) would speed up the process and have our investor reach their goal even faster. ASX stock investing is generally not a get-rich-quick process. But I hope this exercise shows that if an investor is patient and disciplined, it can be an effective way of obtaining a reliable second income.
