If ASX shares are well-known for providing fat, fully franked dividends, the opposite is true of US stocks. You'd be hard pressed to find any Australian investor who prioritises buying shares in the American markets solely for passive dividend income.
Instead, the 'States have long been the hunting ground for the world's best growth stocks. That's not surprising when we consider the calibre of long-time winners like NVIDIA, Tesla, Mastercard, Amazon, Alphabet, Netflix, and Microsoft, amongst many others.
It's true that dividends from US stocks don't come with franking credits attached. But that doesn't mean that Australian investors can't obtain a decent income from stocks across the Pacific.
Indeed, the US markets are home to some of the world's most impressive dividend growth streaks. Companies like Coca-Cola, Altria, Johnson & Johnson, Pepsico and Colgate-Palmolive have delivered an annual dividend increase every single year for at least 50 years. That's not something that many ASX share can claim.
Sure, if one buys a US-based index fund, they can expect a lot less in dividend income upfront compared to buying an ASX index fund. To illustrate, the iShares Core S&P/ASX 200 ETF (ASX: IOZ) is currently trading with a trailing dividend distribution yield of 3.42%. In contrast, the iShares S&P 500 ETF (ASX: IVV), which tracks the most popular gauge of the American markets, will only get you a trailing yield of 1.1% at current pricing.
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Can US stocks deliver decent passive income?
Let's assume for a moment that these two index funds pay out the same dividend distributions over the coming 12 months as the past 12. If that's the case, an investor would need to invest just over $700,000 in the ASX index fund of they wished to receive roughly $2,000 a month in passive dividend income. But for the S&P 500 ETF, the amount required for that same level of passive income would stand at just under $2.2 million.
However, there are easier ways to get a higher yield from US stocks. Probably the easiest is by buying higher-yielding passive income stocks. Not all of the highest calibre companies on the US markets are growth beasts. Let's start with some of the dividend stars we listed above. right now, Coca Cola shares are trading with a dividend yield of 2.72%. Pepsico offers 3.51%, while Altria has a whopping 6.32% on the table.
No dividend is safe, no matter how long its streak of annual increases. But it does give us a guide that a company knows how to make consistent profits through all kinds of economic cycles.
A combination of these kinds of shares can easily help an ASX passive income investor get at least as much of a yield form the US markets as is available on the ASX, and perhaps even more.
