The Australian share market is a great place to generate passive income. That's because many listed companies share a portion of their profits with their shareholders each year in the form of dividends.
For example, if you had a portfolio of ASX dividend shares that collectively offered you a 5% dividend yield, you would generate $500 of passive income if you had $10,000 invested.
And while that is a nice income boost for doing nothing, it isn't admittedly a life-changing sum of money. It's enough to pay for some dinners out or an interstate flight, but it's not exactly a second income.
But with a combination of time, regular investments, and compounding, you could build a portfolio that generates enough passive income for you to retire early.
Image source: Getty Images
Retiring early
Let's say you want to retire on $50,000 a year. If your portfolio has an average 5% dividend yield, then you would need $1 million invested to generate that level of income.
While this sounds like a challenge, history shows that it is achievable.
If you started with a $15,000 investment portfolio and contributed $400 a month, it would grow to the million-dollar mark in 30 years if you earned an average 9.6% per annum return.
While not guaranteed, this return is in line with the 30-year average return for ASX shares according to Fidelity.
Three ASX dividend shares with 5%+ yield
If you are lucky enough to already have a million-dollar portfolio, then you could look at the three buy-rated ASX dividend shares listed below for your passive income needs.
Dicker Data Ltd (ASX: DDR)
Dicker Data is a leading technology hardware, software, cloud, and cybersecurity distributor. Morgan Stanley has an outperform rating and a $10 price target on its shares. As for dividends, its analysts are forecasting fully franked dividends per share of 43.8 cents in FY 2023 and 48.8 cents in FY 2024. Based on the latest Dicker Data share price of $8.15, this will mean yields of 5.4% and 6%, respectively.
Healthco Healthcare and Wellness REIT (ASX: HCW)
Another ASX dividend share that has been named as a buy is Healthco Healthcare and Wellness REIT. Morgans is positive on this health and wellness-focused real estate investment trust and has an add rating and $1.72 price target on its shares. It is also forecasting dividends per share of 7.6 cents in FY 2023 and 8 cents in FY 2024. Based on the current Healthco Healthcare and Wellness REIT unit price of $1.39, this will mean yields of 5.45% and 5.9%, respectively.
Universal Store Holdings Ltd (ASX: UNI)
Finally, Goldman Sachs believes this youth fashion retailer could be an ASX dividend share to buy. It has a buy rating and a $5.05 price target on its shares. As for income, it expects fully franked dividends per share of 20 cents in FY 2023 and 24 cents in FY 2024. Based on the current Universal Store share price of $2.67, this will mean yields of 7.5% and 9%, respectively.
