Many Australians reach the age of 40 without a secondary source of passive income. That's unfortunate because 40 is probably the age where a second income stream would start becoming very useful to the average Aussie.
Luckily, it's not too late. Someone at 40 probably has a good 25 years left in the workforce that they can use to get a second income rolling, using ASX 200 shares for big cash dividends.
When you invest in a dividend share, you are entitled to whatever dividend payments that share doles out. Most ASX dividend shares pay out a dividend every six months. The more shares you buy, the more cash you can receive. If you invest in quality dividend shares for long enough, ideally reinvesting dividends along the way as well, that cash flow could help replace the income you get from your salary.
Before you get started on this passive income journey, you'll want to make sure your own financial house is in good order. So if you have debt (credit cards, personal loans or car loans, not mortgages), you'll need to pay that off first before investing in shares. You should also work towards saving more than you spend every fortnight. That way, you are in a position to regularly add funds to your investment portfolio.
But if you've done all that, then it's time to find some ASX 200 shares for big cash dividends.
Where to look for big cash dividends on the ASX 200
If I was investing for a second income, I would look to use a mixture of high-yielding ASX dividend shares, as well as shares that have shown an ability to grow their dividends consistently over time.
On the former, the big banks and the big miners are a great place to start. BHP Group Ltd (ASX: BHP) is the largest share on the ASX. It has been funding record dividend payments over the past few years, and today has a trailing dividend yield of almost 9%. BHP's dividends are cyclical, but when times are good in the commodity prices space, there is arguably a good chance that this will be reflected in BHP's payouts.
Banks are also looking tempting from an income perspective right now. The big four banks, with the exception of Commonwealth Bank of Australia (ASX: CBA) all offer fully franked yields above 6% today. If the banks keep up their dividend payments, these shares could give your passive income stream a strong kick-start.
Other shares I would look at for big (and typically fully franked) cash dividends right now include Telstra Group Ltd (ASX: TLS), JB Hi-Fi Ltd (ASX: JBH) and Coles Group Ltd (ASX: COL).
But I think it is imprudent to build an income portfolio with these kinds of sources alone. Immediate cash flow is important, but so is finding the businesses that slowly but consistently raise their dividends most years if you've got more than two decades to play with.
Don't forget about dividend growth shares for passive income
In that light, I would also turn to Washington H. Soul Pattinson and Co Ltd (ASX: SOL) and Brickworks Ltd (ASX: BKW).
Neither of these companies are eye-catchers when it comes to yield right now. Soul Patts currently has a dividend yield of under 2.5%, as does Brickworks.
However, both of these businesses are arguably in the top tier of the ASX. Both have a long history of delivering market-beating returns to shareholders, and both have resilient and diversified investment portfolios of their own that help fund these dividends.
Speaking of dividends, Soul Patts has the best income streak on the entire ASX. It has raised its dividend every single year since 2000. Brickworks is a close second and hasn't cut its dividend payments since the 1970s.
Soul Patts' dividend yield may be under 3.5% today. But, as we covered last month, someone who bought shares of this company back in 2000 would be getting a yield on cost of over 20% today.
So I think a great way for someone at 40 who is looking to build a passive income portfolio is to choose a range of different income-providing shares for a diversified, yet cash-flowing share portfolio. It will take time, but luckily, you still have that on your side.
