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How to generate $50,000 income each year from ASX dividend shares

James Mickleboro
Dividends

I’m sure most readers would agree that a passive income of $50,000 per year would be very welcome.

The good news is that with a combination of time, patience, and dividend shares, this is a real possibility.

How can you earn $50,000 a year with ASX dividend shares?

If you already have a significant cash balance sitting in your bank account, you’re already halfway there.

National Australia Bank Ltd (ASX: NAB) is expected to pay a fully franked dividend of ~$1.64 per share in FY 2020.

Whilst this is a slight cut from the dividends it paid a year earlier, due to a recent share price pullback, it equates to a very generous dividend yield of 6.6%.

Based on that yield, an investor would need to buy $758,000 worth of NAB’s shares to generate an income of $50,000 per share.

How else can you achieve this?

But not everyone is fortunate enough to have $758,000 sitting in their bank account. So, this method is not feasible for everyone.

But if you have time on your side, then you certainly can still achieve this if you invest wisely.

The key is to look at investing in companies that have strong long-term growth potential and pay dividends. It doesn’t matter if the current dividend yield is only small, because in time the real focus will be the yield on cost.

The yield on cost is precisely as it sounds – the dividend yield on the price that investors paid for the shares in the past.

Two of my favourite examples for this are Breville Group Ltd (ASX: BRG) and CSL Limited (ASX: CSL).

When CSL was spun off by the government in the 1990s, you could have picked up its shares for just 76.6 cents per share (after adjusting for stock splits).

In FY 2019 the biotherapeutics giant paid shareholders an unfranked dividend of approximately $2.66 per share. Whilst this equates to a current dividend yield of just 1%, it is a massive 347% yield on cost for those that bought shares at its IPO.

This means that a purchase of just ~$14,400 worth of shares at its IPO would have generated $50,000 in dividends in 2019.

It’s a similar story for long term Breville shareholders. The appliance manufacturer’s shares were changing hands at 80 cents per share at the start of 2000.

It paid its shareholders a fully franked dividend of 37 cents per share in FY 2019. As a result, it offers a yield on cost of 46.25%. This means a ~$108,000 investment in its shares in 2000 would have generated $50,000 in dividends in 2019.

The post How to generate $50,000 income each year from ASX dividend shares appeared first on Motley Fool Australia.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of Altium, Appen Ltd, and National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019