Here's how I'd use the Warren Buffett method to target lifetime passive income from ASX shares

We can learn a thing or two from Warren Buffett about passive income.

A man in his late 60s, retirement age, emerges from the Australian surf carrying a surfboard under his arm and wearing a wetsuit.

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

The legendary investor Warren Buffett is an interesting figure when it comes to passive income. Buffett is famous for starving the investors of his company Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) of passive dividend income for decades.

In fact, the last dividend Berkshire paid out was back in the 1960s. Buffett has even joked that he must have been in the bathroom when the payment was approved.

Ever since then, Berkshire shareholders haven't received a single dollar of dividend income.

But that doesn't mean Buffett himself is averse to receiving dividends. In fact, Berkshire is probably one of the largest single recipients of dividend income in the world. Our Foolish colleagues in Buffett's home country of the United States estimated back in June that Berkshire is on track to bank more than US$6 billion in passive dividend income over the coming 12 months.

What's even more mindboggling is that it is estimated that US$5.17 billion of that passive income will be coming from just seven underlying shares in Berkshire's portfolio.

Those Berkshire bankrollers are as follows:

So Buffett is someone who evidently knows a thing or two about building a stream (in this case a raging torrent) of passive income.

But how can we take Warren Buffett's experience to our own ASX and build a stream of passive income from ASX dividend shares that will last a lifetime, as Buffett's has?

Building a Buffett-inspired passive income portfolio

I think there are two key lessons here.

The first is that investors should find high-quality dividend payers that have the financial strength to raise their dividends over time in a meaningful, inflation-beating way.

Take Apple and Coca-Cola. Apple only started paying its investors dividends in 2012. But since then, it has increased its annual payouts substantially every year. Just this year, the technology titan boosted its quarterly dividend payouts by 4.35% from 23 US cents a quarter to 24 US cents.

Meanwhile, Coca-Cola has one of the best dividend growth streaks in the world, having just raised its annual dividend for the sixtieth (yes, 60) year in a row.

The second is that investors should seek a wide range of these quality passive income payers. You'll notice that of those seven Berkshire bankrollers listed above, two are oil shares (Chevron and Occidental), one is a tech stock (Apple), two are financials stocks (Bank of America and American Express), and two are consumer staples giants (Coke and Kraft-Heinz).

Buffett, and Berkshire by extension, is thus able to rely on a wide range of top-tier companies that all operate in different corners of the market. This reduced the portfolio's single-sector risk substantially and ensures that Berkshire's stream of passive income remains strong.

I myself attempt to incorporate these two lessons into my own passive income portfolio. That's why I invest in a range of high-quality shares like Washington H. Soul Pattinson and Co Ltd (ASX: SOL), Wesfarmers Ltd (ASX: WES), National Australia Bank Ltd (ASX: NAB), MFF Capital Investments Ltd (ASX: MFF), Telstra Group Ltd (ASX: TLS), and Endeavour Group Ltd (ASX: EDV).

Collectively, I hope these companies will be half as kind to me in terms of generating passive income as Buffett's investments have been to him.

Should you invest $1,000 in Mff Capital Investments right now?

Before you buy Mff Capital Investments shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Mff Capital Investments wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Bank of America is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Sebastian Bowen has positions in American Express, Apple, Berkshire Hathaway, Coca-Cola, Endeavour Group, Kraft Heinz, MFF Capital Investments, National Australia Bank, Telstra Group, Wesfarmers, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Apple, Bank of America, Berkshire Hathaway, Chevron, Kraft Heinz, and Occidental Petroleum. The Motley Fool Australia has recommended Apple, Berkshire Hathaway, Telstra Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. 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

A woman relaxes on a yellow couch with a book and cuppa, and looks pensively away as she contemplates the joy of earning passive income.
ETFs

3 ASX ETFs to buy for passive income in May

Don't like stock picking but want passive income? Here are three funds that could help you.

Read more »

A businesswoman on the phone is shocked as she looks at her watch, she's running out of time.
Bank Shares

Want to bag the next Westpac shares dividend? Better be quick…

Westpac will pay an interim dividend of 76 cents per share next month.

Read more »

supermarket asx shares represented by shopping trolley in supermarket aisle
Dividend Investing

Should I buy Coles shares for their reliable passive income?

We take a look at Coles’ passive income credentials and the potential for share price gains.

Read more »

Ecstatic woman looking at her phone outside with her fist pumped.
Dividend Investing

Buy Woolworths and these ASX dividend shares

Analysts are tipping the supermarket giant and these shares as buys. But why?

Read more »

Man holding fifty Australian Dollar banknote in his hands, symbolising dividends, symbolising dividends.
Dividend Investing

This ASX 200 stock is planning to pay a 25% dividend yield this month

This stock is rewarding its shareholders handsomely. Here's what is happening.

Read more »

Middle age caucasian man smiling confident drinking coffee at home.
Dividend Investing

Buy these ASX dividend stocks to supercharge your passive income

Analysts believe that these buy-rated stocks will provide income investors with some great yields in the near term.

Read more »

Man holding out Australian dollar notes, symbolising dividends.
Dividend Investing

3 ASX shares yielding over 7% for your portfolio

Analysts are expecting big yields from these buy-rated shares in the near term.

Read more »

Hand of a woman carrying a bag of money, representing the concept of saving money or earning dividends.
Dividend Investing

1 ASX dividend stock down 27% I'd buy right now

This business is trading cheaply, in my view.

Read more »