Banking $6,000 a year in passive income from ASX shares would give me an extra $500 every month to save or spend as I see fit.
Of course, that won't happen right away.
Watch that passive income grow
First, I need to build up the right portfolio of ASX dividend shares, with a preference for those fully franked dividends. That way I can likely hold onto more of that passive income when it's time to pay the ATO their dues each year.
As I'm building my portfolio of income stocks, I'll also be reinvesting those dividends rather than spending them. With the power of that compounding magic, I'll reach my $ 6,000-a-year passive income goal a lot quicker.
Choosing those ASX shares for passive income
When it comes to ASX shares paying dividends, the highest-yielding stocks may not always be the best options.
Bear in mind that the yields you see posted, and the ones we discuss below, are trailing yields. These are based on the past 12 months of payouts. Future dividends may be higher or lower, depending on a range of company-specific and macroeconomic factors.
It's also a good idea to choose at least 10 or so ASX shares operating in different sectors. Diversifying your holdings will cut the risk of taking a big hit on your passive income if one particular sector faces headwinds.
With that said, here are three higher-yielding S&P/ASX 200 Index (ASX: XJO) shares with lengthy dividend track records.
Up first we have Macquarie Group Ltd (ASX: MQG).
The ASX 200 financial share has paid two partly franked dividends every year since 2013.
Over the past 12 months, Macquarie shares delivered an interim dividend of $3 per share and a record final dividend of $4.50 per share on the back of $5.2 billion in full-year profits.
That works to a fully year passive income payout of $7.50 per share, 40% franked, for a trailing yield of 4.3%.
Up next is Westpac Banking Corp (ASX: WBC).
Over the past 12 months, the ASX 200 bank share paid a final, fully franked dividend of 64 cents per share and an interim dividend of 70 cents per share. The interim dividend was up 15% from the prior year following a 22% increase in half-year profits.
With a full-year passive income payout of $1.34 per share, Westpac trades on a trailing yield of 6.3%.
And finally, we have New Hope Corp Ltd (ASX: NHC).
The ASX coal share leapt onto passive income investors' radars over the past year following two all-time high, fully franked dividends payments.
On the back of soaring coal prices, New Hope paid a record final dividend of 56 cents per share and a record interim dividend of 40 cents per share.
That equates to a trailing yield of 19.8%.
Now, if I were to invest a similar amount in each of these ASX shares I'd be earning a trailing yield of 10.1%.
If I was looking to bank my $6,000 in passive income straight away, I'd need to invest $59,406.
But as I said up top, I wouldn't aim to achieve this goal overnight.
Instead, I'd set aside some money each day and invest in smaller monthly allotments.
By reinvesting those dividends and letting them compound, I'll reach my $500 of monthly passive income in due time.
