Passive income is a hugely popular wealth-building strategy among Australian investors.
The idea that you can invest your money, set and forget, and earn a constant and easy passive income is attractive to pretty much anyone.
After all, passive income can give you both financial independence and also create a buffer against share market volatility.
But the question always is, what does that passive income actually look like?
Let's break it down, using a $100,000 investment portfolio as an example.
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What passive income can I earn off a $100,000 portfolio?
The easiest way to calculate your passive income is by multiplying your total portfolio value by your dividend yield.
The tricky part is that the answer varies widely depending on the dividend yield of your portfolio.
For example, $100,000 x 3% = $3,000 per year in dividend payments.
But if your portfolio has a dividend yield of around 6%, your passive income will be double the size. That's because $100,000 x 6% = $6,000 per year in dividend payments.
And so on. As your dividend yield increases, the passive income you can earn off your $100,000 portfolio also increases.
These figures are based on cash dividends before any tax or franking credit benefits.
What ASX shares will earn me $4,000 per year in annual passive income?
To earn an annual passive income of around $4,000, your portfolio will need to yield around 4%.
There is a huge range of ASX dividend shares available that pay around that level.
For example, Telstra Group Ltd (ASX: TLS) pays a dividend yield just under 4% at the time of writing.
Argo Investments (ASX: ARG) pays just a little over the 4% mark.
Major bank National Australia Bank Ltd (ASX: NAB) pays around a 4.5% dividend yield to its shareholders.
ANZ Group Holdings Ltd (ASX: ANZ) pays a little more, closer to 4.7%.
Of course, ideally, you'd want a mixture of shares that combine to make a 4% yielding portfolio for diversification reasons, rather than a portfolio of only one stock.
What if I wanted $6,000 per year in passive income, what shares might pay me that?
It's also possible to earn a little more. Again, there are plenty of ASX shares that yield around 6%, which is what you'd need to earn $6,000 per year in passive income from your $100,000 portfolio.
AGL Energy Ltd (ASX: AGL), for example, pays its shareholders a little under the 6% mark, at closer to a 5.7% yield.
APA Group (ASX: APA) yields around the same level, paying its shareholders around 5.6% at the time of writing.
But there are some options that yield just over 6%, too. Charter Hall Social Infrastructure REIT (ASX: CQE) pays around 6.2%, and Stockland Corporation Ltd (ASX: SGP) pays closer to 6.3%.
