The ASX stock market can be a gateway to unlock a significant monthly passive income for investors.
Many investments available on the ASX (and internationally) pay dividends, as they share profits with shareholders each year. With shares, you don't need to deal with tenants, leasing agents or repairs.
It's easy to take a back seat with shares; that's why I think it's the best form of passive income.
Businesses aren't like term deposits – they can grow earnings, increase dividends, and increase share prices. Some businesses on the stock market can provide a better yield than savings accounts straight away.
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The power of a dividend yield
If we put $1,000 into a bank account earning 4% interest, we'd expect to earn $40 in annual income.
Investing in stocks comes with different dividend yields. The higher the dividend yield, the more money investors will get. The highest yields (of 10% or more) aren't necessarily safer, though.
Telstra Group Ltd (ASX: TLS) is an example of a good ASX dividend share. Telstra's annual payout last year was 19 cents per share, which translates into a 4% cash dividend yield. Franking credits boost the after-tax effect of receiving the dividend (often leading to tax refunds). Including franking credits, Telstra's FY25 payout equated to a grossed-up dividend yield of 5.75%.
At the current Telstra share price, a $1,000 investment would yield $57.50 in passive income in FY25.
I think there's a good chance Telstra will increase its payout to 20 cents per share in FY26, which would yield just over $60 of grossed-up passive income (including franking credits). That's an increase of around 5%.
Savings in the bank account don't grow like that. You can leave the cash in there (and not utilise the interest), but investors can also reinvest their dividends to accelerate wealth-building.
It also shows how making a $1,000 investment can snowball into more passive income for investors.
There's more to the stock market than just Telstra shares, of course.
The stock market is a money-making machine for passive income
Some ASX-listed businesses have a record of growing their dividends every year for 20 years in a row, like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and APA Group (ASX: APA).
There are some investments with very high dividend yields (over 9%) that haven't given any payout reductions (though payout growth is slow), such as Shaver Shop Group Ltd (ASX: SSG) and WAM Microcap Ltd (ASX: WMI).
There are a number of other ASX dividend shares that are appealing as passive income options like MFF Capital Investments Ltd (ASX: MFF), L1 Long Short Fund Ltd (ASX: LSF), Pinnacle Investment Management Group Ltd (ASX: PNI), Universal Store Holdings Ltd (ASX: UNI), Charter Hall Long WALE REIT (ASX: CLW), Centuria Industrial REIT (ASX: CIP), Rural Funds Group (ASX: RFF) and WCM Quality Global Growth Fund (ASX: WCMQ).
Many of the above investments offer a dividend yield of 5% or more, which is appealing in my book.
Receiving $12,000 annually (or $1,000 per month) at a dividend yield of 5% would require a $240,000 portfolio.
That portfolio goal may sound like a lot, but if an investor invested $1,500 per month and their portfolio returned an average of 10% per year (the long-term average of the share market), it would only take around nine years to reach $240,000. It just takes investing in the right stocks.
