How I'd use ASX dividend shares to retire early with a $50,000 per year portfolio

I think now is the time to move from growth to dividends for an early retirement portfolio, and particularly these 3 high-yield stocks in defensive industries.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With signs of global economic growth slowing, I think now is the time to move from growth shares to dividend shares, and particularly those that are in defensive or non-cyclical industries.

Earnings in industries such as Consumer Staples and Energy tend to be less volatile throughout the economic cycle and I've chosen a few top ASX shares across these sectors that I would use to create $50,000 per year in dividend income to retire early on.

  1. AGL Energy Ltd (ASX: AGL) – Energy

The AGL share price has been relatively stable in recent times and boasts an impressive 5% dividend yield including 55 cents per share (cps) in 1H19, franked to 80%.

AGL remains well-positioned as Australia's largest energy "gentailer" (generator and retailer) despite existing headwinds in Australia arising from energy policy certainty and its effect on capital expenditure.

With a Labor government looking likely to come into power following the May 2019 Federal Election, AGL could benefit from a boost to renewable energy investment and I think there could be upside capital growth for the stock as well as maintaining its dividend yield.

The major risk to AGL's upwards trajectory in my books is a regulatory crackdown in the form of pricing or competition, as its position in the traditionally defensive energy sector and sustained energy prices in eastern Australia should see profitability be maintained in the short to medium term.

  1. Wesfarmers Ltd (ASX: WES) – Consumer Staples

Wesfarmers has been a staple of Aussie share portfolios for decades and has been significantly streamlined under CEO Rob Scott.

In the last 12-18 months, Wesfarmers has spun-off Coles Group Ltd (ASX: COL) and sold its stakes in the Bengalla coal mine, Kmart Tyre and Auto Service (KTAS) and exited its failed Bunnings UK venture to focus on its core strategic priorities.

The Wesfarmers share price is up nearly 10% this year alone and 16.7% in the last year while still offering a juicy 5.80% dividend yield for investors.

Despite spinning off Coles, Wesfarmers' diversification across industries and its status as a true conglomerate should see its portfolio-level earnings offset each other throughout the economic cycle.

  1. Australian Pharmaceutical Industries Ltd (ASX: API) – Health Care

Australian Pharmaceutical Industries (API) is the largest wholesale distributor of pharmaceutical and allied health products with subsidiaries including Priceline and Priceline Pharmacy.

Offering a 5.34% dividend yield, API is another defensive stock that has capital stability and/or growth as well as providing a strong income option for investors' portfolios. The API share price is up 6% this year and should see lower earnings volatility in the event of an economic downturn given many of the products it distributes are considered necessary goods rather than discretionary.

With Australian immigration continuing to drive population growth in the country, I'd expect to see operators in the Health Care sector cash in on a bigger market and greater revenue opportunities in years to come which could form a cornerstone of any early retirement portfolio.

Building the Portfolio

The three stocks I've selected above provide both capital stability (or growth) while also boasting an impressive 5% dividend yield each. I'd be placing AGL at the heart of the portfolio with a 50% allocation, with 30% in Wesfarmers and 20% in API shares.

By starting out with $500,000 in principal split across the three portfolios, investors could use the capital stability / growth to their advantage and reinvest the 5% dividends back into shares via a dividend reinvestment plan (DRP) to grow the shares at an average rate of $25,000 per year.

Within 15 years, the reinvested dividends at 5% would result in $1,039,464 of shares split across AGL, Wesfarmers and API shares. Investors could then unsubscribe from the DRP and have a yearly income of $51,973 ($1,039,464 x 5%).

The beauty of these three is that they can provide growth and stability in the short-term, which can be reinvested to grow shareholdings in each of the three non-cyclical industries while providing the flexibility to generate $50,000 a year in dividends when the time comes to kick back and relax.

Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers 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.

More on Share Market News

iPhone with the logo and the word Google spelt multiple times in the background.
Opinions

I've been buying these 2 US stocks in 2025. Here's why

Sometimes the US markets are a better place to go shopping for stocks.

Read more »

Ecstatic woman looking at her phone outside with her fist pumped.
Share Gainers

Why Catapult, Hutchinson, SKS, and West African shares are pushing higher today

These shares are having a strong session despite the market weakness.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Dexus, Mayne Pharma, Nufarm, and Treasury Wine shares are falling today

These shares are having a tough session on Thursday. But why?

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Mergers & Acquisitions

IAG share price lifts off on strategic alliance approval

IAG shares are racing higher in Thursday’s sinking market.

Read more »

Rising gold share price represented by a green arrow on piles of gold block.
Gold

Up 72% in 2025, why is this ASX 200 gold stock racing ahead of the benchmark again today?

Investors are bidding up this high-flying ASX 200 gold stock again on Thursday. But why?

Read more »

A woman wearing a black and white striped t-shirt looks to the sky with her hand to her chin contemplating buying ASX shares today as the market rebounds
Share Market News

Where could the RBA interest rate go in the next 12 months?

Here’s what one expert thinks could happen with interest rates by early 2026.

Read more »

A man holds his head in his hands after seeing bad news on his laptop screen.
Share Market News

5 things to watch on the ASX 200 on Thursday

It looks set to be a tough session for Aussie investors today.

Read more »

The letters ETF with a man pointing at it.
Share Market News

3 fantastic ASX ETFs to buy with $1,000

These funds could be worth considering if you have money to invest in the share market.

Read more »