There are a number of ways that Australians can invest in ASX shares for passive income. We can invest in stocks in our names, through a company, a trust, superannuation and so on.
Investing for passive income through superannuation makes sense to me for various reasons. I believe the low tax rate is a key benefit.
Remember that the net income we can use for spending is what we receive from our investments after tax. A full-time working Australian may lose a third (or more) of the received passive income to tax – it depends on what tax bracket they're in.
Due to the above, Australians can benefit from superannuation because of the lower tax rate.
Super has a lower tax rate in the accumulation phase compared to normal individual tax rates for a full-time earner. In retirement, the income tax rate could be as low as 0%.
Each Australian's household tax position is different, so we'll just look at targeting a certain passive income level, without talking about tax for the rest of the article.
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How much is needed in superannuation for $6,500 of monthly passive income?
Receiving $6,500 per month in dividends translates into $78,000 annually. I'd bet most Australians would love to receive that level of dividends each year without having to do any further work for the money.
One of the main questions Aussies need to think about is what sort of investments they want to own and what dividend yield comes with that investment.
For example, a portfolio with a dividend yield of 6.5% can be half the size of a portfolio with a dividend yield of 3.25% when targeting $78,000 of yearly income (or any other income goal).
This means that for a 6.5% yield, the portfolio would need to be $1.2 million, whereas it would need to be $2.4 million at a 3.25% yield.
Using a middle value, a 5% dividend yield would require a $1.56 million portfolio to generate an average of $6,500 in monthly passive income.
The final dividend yield I'll note is 4%. It would take a $1.95 million portfolio value to unlock $78,000 of annual dividends.
The types of ASX dividend shares I'd look at
There are plenty of ASX dividend shares that superannuation investors can use to invest in superannuation, in their personal name, or through other structures.
Some of the stocks with lower yields that I'd look at are Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), L1 Long Short Fund Ltd (ASX: LSF), Lovisa Holdings Ltd (ASX: LOV), Wesfarmers Ltd (ASX: WES) and APA Group (ASX: APA).
Turning to investment options with higher dividend yields, I'd consider names like Future Generation Australia Ltd (ASX: FGX), Telstra Group Ltd (ASX: TLS), WCM Quality Global Growth Fund (ASX: WCMQ), Centuria Industrial REIT (ASX: CIP), Rural Funds Group (ASX: RFF), Charter Hall Long WALE REIT (ASX: CLW), Dexus Industria REIT (ASX: DXI), PM Capital Global Opportunities Fund Ltd (ASX: PGF) and Hearts and Minds Investments Ltd (ASX: HM1).
