Passive income plan: I'd invest $100 a week in ASX 200 shares to earn $7,500 of annual dividends

Consistency is key to growing passive income on the ASX 200, in my opinion.

| More on:
A man wearing only boardshorts stretches back on a deck chair with his arms behind his head and a hat pulled down over his face amid an idyllic beach background.

Image source: Getty Images

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

Key points

  • I think that by buying ASX 200 shares and reinvesting my dividends, I could build a worthwhile passive income portfolio
  • Indeed, I think a $100 weekly investment, starting now, could grow to provide $7,500 of dividends each year
  • Here's how my plan could play out over the coming decades 

Investing in S&P/ASX 200 Index (ASX: XJO) shares can be a rewarding strategy. Indeed, the index has gained 23% over the last five years – that's a 4.6% average annual return before considering dividends.

On that note, what if passive income was my investing goal? Many ASX 200 shares provide dividends twice a year.

Here's how I'd build a $7,500 annual passive income by investing $100 a week in ASX 200 dividend shares.

Why I think ASX 200 shares can be attractive investments

I am personally a fan of investing in ASX 200 companies. As the name suggests, the index houses 200 of the Aussie bourse's largest and most influential companies.

ASX 200 shares boasted an average market capitalisation of around $11.4 billion at the end of last quarter, according to data from the S&P Global. That means most could be considered blue-chip stocks – known to generally offer greater stability and security through the market's ebbs and flows.

Not to mention, ASX 200 shares offer an average dividend yield of 4.58%. That's certainly nothing to scoff at!

Such a yield could turn a decent weekly investment into a substantial annual income, thanks to the power of compounding.

Building a $7,500 passive income with ASX 200 stocks

I think I could muster up $100 to invest each week and continue doing so consistently over the coming years.

At that rate, I could sink $5,200 a year into ASX 200 shares – enough to provide $238.16 of passive income annually.

While any extra cash is welcome, that amount probably won't stretch far. So, instead of spending it, I plan to reinvest my dividends, using them to buy more stocks – thereby compounding my returns.

Here's how this strategy could work to build my nest egg substantially over the coming decades, all before considering share price gains:

Years invested$ investedPortfolio value
1$5,200$5,200
5$26,000$28,493
10$52,000$64,137
15$78,000$108,726
20$104,000$164,505

That's right, only considering the power of compounding dividends, my $100 weekly investment could grow into a $164,505 portfolio in two decades.

At that point, it would be capable of providing more than $7,500 of passive income each year.

Just imagine how much it could provide if the value of my shares were to grow by 4.6% annually as well.

Of course, all that assumes ASX 200 shares will continue to pay an average dividend yield of 4.58%, and past performance isn't an indicator of future performance. It's also important to remember that no investment is guaranteed to provide returns.

Could I speed up the process?

But what if 20 years was a bit too long of an investment timeline? Well, there are plenty of ASX 200 shares offering above-average dividend yields.

Some such stocks include ANZ Group Holdings Ltd (ASX: ANZ), Harvey Norman Holdings Ltd (ASX: HVN), Woodside Energy Group (ASX: WDS). They currently boast respective yields of 6%, 8.4%, and 11.1%.

Though, a high dividend yield doesn't necessarily make a good passive income buy.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Harvey Norman. The Motley Fool Australia has positions in and has recommended Harvey Norman. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

$100 Australian notes on top of each other.
Dividend Investing

These buy-rated ASX dividend stocks offer 7%+ yields

Analysts expect these buy-rated stocks to provide income investors with big yields.

Read more »

Happy man holding Australian dollar notes, representing dividends.
Dividend Investing

3 outstanding ASX dividend shares to buy next week

Analysts are tipping these shares to offer big returns over the next 12 months.

Read more »

A male oil and gas mechanic wearing a white hardhat walks along a steel platform above a series of gas pipes in a gas plant
Dividend Investing

Should I buy Santos shares for dividend income?

Santos shares have been steadily upping their dividends since 2020.

Read more »

A businessman lights up the fifth star in a lineup, indicating positive share price for a top performer
Dividend Investing

2 of the best ASX dividend shares to buy in December

Bell Potter rates these dividend shares very highly. Let's see why.

Read more »

Man holding Australian dollar notes, symbolising dividends.
Dividend Investing

Analysts expect 5% to 8% dividend yields from these ASX stocks

Here's why these dividend stocks could be great options for income investors today.

Read more »

Male hands holding Australian dollar banknotes, symbolising dividends.
Dividend Investing

5 ASX 200 shares with ex-dividend dates next week

Do you own any of these shares that are primed to pay out?

Read more »

A couple makes silly chip moustache faces and take a selfie on their phone.
Dividend Investing

Invested $5,000 in Telstra shares in 2021? Here's how much passive income you've already earned

Atop the share price gains, how much passive income have investors earned from their Telstra stock?

Read more »

Happy couple enjoying ice cream in retirement.
Dividend Investing

Buy Telstra and this ASX dividend stock now

Analysts are saying good things about these dividend stocks. Let's see why they are bullish.

Read more »