Earning a passive income of $50,000 a year from the share market is entirely possible for regular investors.
You'll just need a combination of time and patience.
How can you achieve this?
I think the best way to achieve this is by investing in quality companies that share their profits with shareholders and have strong long term growth potential.
My favourite example of this is CSL Limited (ASX: CSL). Very few people would consider the biotherapeutics giant as a dividend share in the same vein as Telstra Corporation Ltd (ASX: TLS) or Westpac Banking Corp (ASX: WBC). However, if you invested in its IPO back in 1994 you would feel very differently.
As I mentioned here last week, adjusting for a 3-1 stock split in 2007, CSL shares hit the ASX boards 26 years ago for just 76 cents per share.
In FY 2021, the company is forecast to pay shareholders a dividend of $3.04 per share. Based on this forecast dividend payment, if you wanted to earn an income of $50,000 from CSL shares, you need to own approximately 16,450 shares.
If you had invested in its IPO in 1994, it would have cost you just $12,500 to acquire those 16,450 shares.
So there you go, a $12,500 investment is now generating $50,000 of dividends each (and growing).
While CSL's success is certainly not common, it does happen. Northern Star Resources Ltd (ASX: NST) is another example.
It listed on the ASX for 20 cents in 2004. In FY 2020 it paid shareholders a 27 cents per share dividend. This means a $37,000 investment in 2004 would be yielding $50,000 in dividends this year.
What about the future?
I think that companies like Altium Limited (ASX: ALU), Appen Ltd (ASX: APX), and Kogan.com Ltd (ASX: KGN) could be dividend stars of the future.
Their yields may be minimal at present, but due to their very strong long growth potential, I believe their dividends could grow materially over the 2020s and beyond.
