Passive income is every ASX investor's dream. By investing the right Aussie shares, savvy investors can supplement their income with a regular dividend payment.
Not only does passive income give you some more financial freedom, it can also help create a buffer against share market volatility, which is particularly valuable right now while markets are choppy.
But the question is, how much do you need to invest in ASX shares to earn the passive income you want?
Here's a calculation breakdown to help you understand.
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The calculation
Let's say you want to earn $100 per week in passive income by investing in ASX shares.
The easy calculation is to work out your annual dividend income, and then divide it by the dividend yield of the ASX stock you're looking to invest in.
For example, $100 per week totals $5,200 per year in dividend payments.
You'd then need to divide that $5,200 sum by the dividend yield of your desired ASX shares to find out how much you'd need to invest.
Note that the majority of ASX dividend paying shares pay their shareholders quarterly or twice per year. Occasionally some ASX stocks pay a monthly dividend. This means a $100 per week dividend payment would be paid in monthly, quarterly, or semi-annual chunks.
Break it down for me
The problem is that the figure will vary wildly depending on the dividend yield of the ASX shares you'd be buying. Overall, as the dividend yield increases, your upfront investment decreases.
Let's say you're looking at buying an ASX blue-chip stock like BHP Group Ltd (ASX: BHP). The mining giant is forecast to pay fully-franked dividends of $1.91 per share in FY26. Using the $64.88 share price at the time of writing, that translates to a yield around 4%.
Therefore, $5,200 divided by BHP's 4% dividend yield, equals $130,000.
That $130,000 figure is what you'd need to invest in a 4% yielding stock in order to earn your $100 per week dividend payout.
However, if you're looking at investing in an ASX share which pays a 5% dividend yield, such as Origin Energy Ltd (ASX: ORG), then you'd need to invest $104,000 to earn the same amount of passive income.
Then for ASX shares yielding 6%, 7%, or even 8%, you'd need to invest around $86,666, $74,285, or $65,000, respectively.
ASX shares which fall into the 6% to 8% yielding bracket are companies like packaging giant Amcor Plc (ASX: AMC), media giant Nine Entertainment Co. Holdings Ltd (ASX: NEC), or even an ASX-listed exchange-traded fund (ETF) such as the BetaShares Australian Top 20 Equity Yield Maximiser Fund (ASX: YMAX).
Avoid temptation
It is tempting for investors to concentrate their investments on ASX shares which pay the highest dividend yield. After all, this means you would need to have a lower initial investment amount.
But choosing the right ASX dividend paying shares depends on your current portfolio, your risk profile, and your investment timeline.
Rather than fast short-term growth, investors should concentrate on good-quality businesses with strong balance sheets and stable earnings. These stocks are most likely to stand the test of time and while also building wealth.
If you're more risk tolerant, then diversity is key. By investing across a range of different ASX sectors and businesses, you can help hedge against risk.
