If you're looking for passive income, ASX 200 dividend shares are a straightforward way to earn additional income while you sleep.
The only issue is that it can be difficult to work out exactly how to earn the passive income you want and which ASX 200 shares could help you get there.
Let's break it down, using an annual $10,000 passive income as an example.
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What portfolio size do I need to get $10,000 per year in passive income from ASX 200 shares?
To work out how much you'd need to invest in ASX shares to earn your $10,000 per year passive income goal, you need to divide that passive income figure by the dividend yield of your overall portfolio.
For example, $10,000 at a 3% dividend yield is roughly $333,000. This is the portfolio size you'd need to earn your desired passive income each year.
The tricky part is that the answer varies significantly depending on the dividend yield of the ASX shares you'd have in your portfolio.
For example, a portfolio with a dividend yield of around 6% only needs to be half the size of one with a dividend yield of around 3% to generate the same level of dividend income.
How much do I need to invest to earn $10,000 per year from a 4% yielding portfolio? And what ASX 200 shares can I choose from?
To earn the same passive income from a 4% yielding portfolio, you'd need around $250,000. That's because $10,000 ÷ 4% = $250,000.
There are several ASX 200 shares that yield around 4%.
At the time of writing, QBE Insurance Group Ltd (ASX: QBE) and ANZ Group Holdings Ltd (ASX: ANZ) both pay a yield of just over 4%. As do Aurizon Holdings Ltd (ASX: AZJ) and Contact Energy Ltd (ASX: CEN).
What about if my portfolio yielded 5%? How much do I need to invest, and what ASX 200 shares can I buy?
To earn the same passive income off a 5% yielding portfolio, you'd need to invest around $200,000 ($10,000 ÷ 5% = $200,000).
Again, there are several dividend-paying shares listed on the ASX 200 that yield around this level.
Energy providers Origin Ltd (ASX: ORG) and AGL Energy Ltd (ASX: AGL) yield around this level. As do Amcor Ltd (ASX: AMC), Ebos Group Ltd (ASX: EBO) and Harvey Norman Holdings Ltd (ASX: HVN).
Are there options if I want my portfolio to yield much higher at around 7% or 8%?
To earn your $10,000 passive income off a 7% or 8% yielding portfolio, you'd need to invest much less. Around $143,000 at 7% or $125,000 at 8%.
There are several ASX shares that yield around this level, but not many of them are listed at this level, let alone in the top 200. Higher yields generally come with more risk or sometimes represent a declining share price.
There are some options, though. GQG Partners Inc (ASX: GQG), Wam Leaders (ASX: WLE), Spark New Zealand Ltd (ASX: SPK), Atlas Arteria Ltd (ASX: ALX), and Beach Energy Ltd (ASX: BPT) are all ASX 200-listed shares yielding 7% or even higher.
