Chasing $500 a month in passive income? Here's how

The maths behind a $6,000 annual dividend income stream.

Building $500 a month of passive income from ASX shares is a goal plenty of Australians work towards.

It sounds modest enough on the surface, but annualised, the total amount comes to $6,000.

To reach that goal, many investors look at ASX blue-chip shares with high dividend yields. Two of the most widely held income names on the market are Commonwealth Bank of Australia (ASX: CBA) and Telstra Group Ltd (ASX: TLS).

Let's run the numbers on both.

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The passive income maths on CBA shares

CBA shares are changing hands at around $178 at the time of writing.

Analyst forecasts compiled by CommSec point to an annual dividend of $5.15 per share in FY27, fully franked.

That works out to a cash yield of roughly 2.9%.

To collect $6,000 of cash dividends, you would need about 1,165 CBA shares.

At the current price, that is an outlay of roughly $208,300.

However, franking changes everything.

A fully-franked $5.15 dividend carries about $2.21 of franking credits at the 30% company tax rate, lifting the grossed-up figure to roughly $7.36 per share.

On that basis, 816 shares, or an investment of about $145,900, would deliver $6,000 of grossed-up income.

Whether those credits are useful to you will depend on your marginal tax rate.

What Telstra shares could deliver

Telstra shares are trading at around $5.07 at the time of writing.

Analysts expect a 21-cent annual dividend for FY26, franked at roughly 90%.

That is a cash yield of about 4.1%, comfortably ahead of CBA.

You would need roughly 28,570 Telstra shares to bank $6,000 in cash, costing about $144,900.

Counting franking credits of around 8.1 cents per share, the grossed-up requirement drops to about 20,590 shares, or roughly $104,400.

How the latest earnings stack up

However, when buying ASX shares for income, investors should also look at how the underlying companies are performing.

CBA delivered a steady first-half result for FY26 in February.

Cash net profit after tax rose 6% to $5.45 billion.

Net interest margin held at 2.04% on an underlying basis, and return on equity edged up 10 basis points to 13.8%. The interim dividend increased 4% to $2.35 per share, fully franked.

CBA's full-year result lands on 12 August.

Telstra's half was arguably the stronger of the two.

EBITDA rose 4.9% to $4.2 billion, net profit climbed 8.1% to $1.2 billion, and mobile services revenue grew 5.6%.

Telstra lifted its interim dividend 10.5% to 10.5 cents per share, and its on-market buyback program was expanded to up to $1.25 billion.

Blending both for passive income

For investors looking for diversification, a 50/50 split changes the arithmetic again.

Taking $3,000 of cash dividends from each would require roughly 583 CBA shares and 14,286 Telstra shares.

That is a combined investment of about $176,700, cheaper than CBA alone but dearer than Telstra alone.

The trade-off here is fairly straightforward, and it comes down to what you value more in an income holding.

Telstra offers the higher starting yield and faster dividend growth, while CBA offers full franking and a longer record of payout stability.

Foolish Takeaway

Neither of these businesses will hand you $500 a month cheaply.

Even the more generous Telstra yield demands close to $145,000 before franking credits are counted.

For most investors, the realistic path is accumulating the position over years rather than buying it in one hit.

Reinvested dividends do a lot of the heavy lifting across a decade, and a portfolio spread across more than two names will allow you to sleep better.

Motley Fool contributor Mark Verhoeven has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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