Building passive income is a common motive for investing in ASX shares, and for that, one needs dividends. I think S&P/ASX 200 Index (ASX: XJO) bank Westpac Banking Corp (ASX: WBC) could be a winning dividend share.
The big four bank currently offers a healthy dividend yield and could be on track to post notable growth in the coming years, according to brokers.
Let's take a look at how I'd aim to realise $150 of monthly passive income by investing in Westpac shares today.
Does the future look bright for Westpac shares?
The Westpac share price has been volatile in recent months, ultimately falling 9% over the last 12 months to trade at $22.235 right now. That's compared to the ASX 200's 2% dip over the same period.
That makes it the second-best performer among the big four over that time.
Of course, recent calamity among global banks might have weighed on their ASX 200 counterparts. Fortunately, the chaos appears to have abated for now, perhaps helped by reassurances that the big four are the world's most capitalised.
Now the future looks bright for Westpac shares, according to one top broker.
Goldman Sachs rates Westpac a buy and forecasts its share price to soar to $27.74, my Fool colleague James reports – a potential 25% upside.
Building a $150 monthly passive income
The broker also tips Westpac shares to provide $1.47 of dividends this financial year. That would leave the bank stock boasting a 6.6% dividend yield, considering its current share price.
At that rate, I'd need a stake worth around $27,250 to receive $1,800 of annual passive income, or $150 each month. Today, that sum would see me walking away with 1,226 Westpac shares.
But what if I don't have a $27,250 lump sum to invest?
By regularly and consistently investing a smaller amount – say, $200 a month – and reinvesting any dividends I receive, I think I could build such a parcel in nine years. That's the power of compounding.
And that doesn't consider any potential share price gains. Though, it does assume Westpac shares will offer a consistent 6.6% dividend yield over the years.
If the stock's actual yield is lower, I might have to build a larger stake to realise a $150-a-month income stream. Additionally, investing a smaller amount each month might extend the time it takes to build my parcel.
And, of course, no investment is guaranteed to provide returns, and past performance isn't an indication of future performance.
Understanding and reducing risks
Now, it's unlikely that Westpac shares will consistently provide a 6.6% dividend yield over the years.
Companies' dividends typically rise and fall alongside their earnings, expenses, and broader market happenings, to name a few potential influences.
Thus, I'd diversify my investments across a variety of companies, sectors, and even asset types. Doing so can reduce some of the risks associated with investing.
