ASX dividend-paying shares are a tool for investors to create an extra passive income stream.
Many Aussies think that they need to invest millions of dollars to make it worth it. But those with more experience know that you can earn a good passive income off any-sized portfolio if it's invested wisely.
But how much dividends could you actually earn?
Let's break it down, using a $400,000 portfolio as an example.
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How much could I earn off a $400,000 ASX share portfolio?
To calculate your passive income, you need to multiply your total portfolio value by your dividend yield.
The tricky part is that the answer varies widely depending on your portfolio's dividend yield.
For example, $400,000 x 3% = $12,000 per year in dividend payments.
But if you double your portfolio yield to around 6%, your passive income will be double the size too. That's because $400,000 x 6% = $24,000 per year in dividend payments.
That's some decent passive income!
Then, as your dividend yield increases, the passive income you can earn from your $400,000 portfolio also increases.
These figures are based on cash dividends before any tax or franking credits.
Of course, this type of money isn't going to become a primary income stream, but it'll certainly help turbocharge your wealth.
Which ASX shares could earn me $12,000 per year in dividends?
To earn an annual passive income of around $12,000, your portfolio will need to yield around 3%.
A 3% dividend yield is very achievable, and there is a huge range of high-quality ASX dividend shares that pay out around that level.
Macquarie Group Ltd (ASX: MQG), Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP) are all stable ASX shares that yield around 3%.
What ASX shares could help me earn around $24,000 per year in dividend payments?
To earn an annual passive income of around $24,000, your portfolio will need to yield around 6%.
This is slightly higher than the index average, but there are still plenty of options available.
I'd look at ASX shares like Origin Energy Ltd (ASX: ORG), Graincorp Ltd (ASX: GNC), or Harvey Norman Holdings Ltd (ASX: HVN), which all yield around this level.
What about if I wanted to earn $28,000 per year in dividends, or even more? Is that possible?
Yes, it's possible, although your portfolio would need to average a dividend yield of 7% or higher.
There are options around this level, but remember, the higher the yield, the more risk those ASX shares have.
For ASX shares yielding around 7%, I'd look at Orora Ltd (ASX: ORA), Atlas Arteria Ltd (ASX: ALX), and Dexus Industria REIT (ASX: DXI). Abacus Group (ASX: ABG) pays a little higher, closer to 9%.
Of course, it's important to note that, ideally, you want to build a portfolio comprising a mix of different yielding shares for diversification, rather than a portfolio of just one stock.
