Passive income may be a key goal for many investors that want to generate a lot of dividends each year.
I think there's a reason why the phrase 'it pays dividends' is a positive saying. I think they're great. Receiving cash for doing no work is a really nice benefit, in my opinion. We can receive a share of the company's profits each year, while it (hopefully) re-invests the rest for more growth.
Receiving dividends year after year is one of the best benefits of owning ASX dividend shares. Another great benefit is that ASX dividend shares can deliver growth as well – that's potential capital growth and dividend growth.
The answer we're after is how much investors need to have invested to generate $800 per month. The answer is: it depends.
Dividend yield
It all depends on how much of a dividend yield the portfolio is going to pay.
For starters, receiving $800 per month translates into annual dividends of $9,600. That's a very healthy amount of money.
But, it all depends on what the dividend yield is for and how much passive dividend income it could make.
If the ASX share portfolio had a dividend yield of 1%, then investors would need $960,000 to be invested. That's a lot – almost $1 million.
A 2% dividend yield from a portfolio, but wanting an average of $800 per month, would need a portfolio size of $480,000.
If the portfolio paid a 4% dividend yield, then investors would need a portfolio worth $240,000.
Looking at a 6% dividend yield, we're talking about a portfolio size of $160,000.
An 8% dividend yield from the portfolio means investors would only need to invest $120,000.
Finally a 10% dividend yield would mean that investors need a $96,000 portfolio.
Which ASX shares pay dividends?
Many of the ASX's biggest businesses pay dividends to investors such as BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA) and CSL Limited (ASX: CSL).
Different businesses have different dividend yields, depending on how much of the profit they pay out each year (called the dividend payout ratio) and the multiple of earnings that a business is trading at (which is called the price/earnings (P/E) ratio).
Let's look at what a few dividend yields are expected to be in FY23, according to Commsec's projections.
Telstra Group Ltd (ASX: TLS) shares might pay a grossed-up dividend yield of 5.75%.
National Australia Bank Ltd (ASX: NAB) shares could pay a grossed-up dividend yield of 8.8%.
Coles Group Ltd (ASX: COL) shares are projected to pay a grossed-up dividend yield of 5.1%.
Sonic Healthcare Ltd (ASX: SHL) shares might pay a grossed-up dividend yield of 4.2%.
By mixing and matching different yielding businesses together, we can create a good portfolio for passive income. But, I wouldn't suggest just going for the highest-yielding options – they might be risky and come with less growth.
