Banking an extra $10,000 a year in passive income by buying top S&P/ASX 200 Index (ASX: XJO) dividend shares like Woodside Energy Group Ltd (ASX: WDS) and BHP Group Ltd (ASX: BHP) might not be life-changing.
But if you're like me, that extra income certainly would be welcome!
So, just how much would you have to invest today to earn $10,000 a year in passive income from BHP and Woodside shares?
We'll dig into the numbers in just a tick.
But first…
Image source: Getty Images
Important reminders on passive income planning
When it comes to making plans for that pending passive income, remember that the dividend yields you generally see quoted are trailing yields. The future payouts from BHP, Woodside, or any ASX dividend stocks may be higher or lower depending on a range of macroeconomic and company-specific factors.
Also, note that while we'll look at BHP and Woodside below, a properly diversified income portfolio will contain more than just two ASX dividend stocks.
There's no magic number. But somewhere in the range of 10 to 20 stocks is a good ballpark, ideally operating in various sectors and different geographic locations. This will reduce the chances of your income stream taking a big hit if any particular company or sector runs into a rough patch.
With that said…
Tapping into Woodside and BHP shares for a $10,000 annual passive income
I think Woodside and BHP shares are both appealing passive income investments because of their lengthy track records of paying two fully franked dividends a year, as well as the market-beating, fully-franked yields they offer.
I also believe that demand for their core revenue-earning products – oil and gas in Woodside's case, and iron ore and copper for BHP – will remain strong for years to come.
As for those dividends, BHP paid a fully franked final dividend of 91.9 cents a share on 25 September. The ASX 200 mining giant will pay its interim dividend of $1.039 a share on 26 March. (BHP traded ex-dividend last week, so it's a bit too late to snap up the interim payout.)
That works out to a full-year payout of $1.958 a share. At Wednesday's closing price, that sees BHP shares trading on a fully-franked trailing dividend yield of 3.8%.
Turning to Woodside, the ASX 200 energy stock paid a fully-franked interim dividend of 81.8 cents a share on 24 September. Woodside will pay its final dividend of 83.4 cents a share on 27 March. (Woodside also traded ex-dividend last week.)
That equates to a full-year payout of $1.652 a share. At Wednesday's closing price, Woodside shares trade on a fully-franked trailing dividend yield of 5.5%.
If I were to invest an equal amount in both stocks, I could then expect to earn a 4.7% yield.
Meaning I'd need to invest $212,766 in Woodside and BHP shares today to bank $10,000 a year in passive income.
Now that's a big investment to make in one go. But that's okay.
Investing is a long game.
You can also reach that goal by investing a smaller amount each month or every other month. You'll reach your income goals in good time.
How have BHP and Woodside shares been tracking?
Of course, atop that $10,000 a year in passive income, we'll also be hoping to see our investments deliver share price gains.
On that front, the BHP share price is up 31.05% over the past 12 months.
And Woodside shares have gained 31.18% over this same period.
