If I were gunning for a $6,102 annual passive income from S&P/ASX 200 Index (ASX: XJO) dividend shares, I know which three I'd add to my portfolio first.
Before having a look at those three ASX 200 shares, however, there are a few things to keep in mind.
Spread those eggs around
I'm sure you've heard the expression, "Don't keep all your eggs in one basket."
It may seem trite. But when it comes to investing, it remains a golden rule.
So, while we'll look at three ASX 200 companies for passive income below, a diversified portfolio (one with many baskets) should contain significantly more. There's no magic number here. But 10 is a decent ballpark.
The second thing to keep in mind is that past performance is no guarantee of future performance.
That's true for a company's share price performance.
And it's true for their dividend payouts. The yields you see quoted tend to be trailing yields, based on the last 12 months of payouts. Future yields may be higher or lower, depending on a range of factors.
With that said…
$6,102 in passive income from ASX 200 shares
The first company I'd target for passive income is ASX 200 energy stock Woodside Energy Group Ltd (ASX: WDS).
Woodside's dividends and share price are linked to oil and gas prices. While these will vary over time, the medium-term outlook for global oil and gas demand remains quite strong.
Woodside has delivered $2.16 per share in fully franked dividends over the past 12 months. At the recent Woodside share price of $30.48, that equates to a fully franked trailing yield of 7.1%.
Second, we have ASX 200 bank stock Westpac Banking Corp (ASX: WBC). Alongside the other big banks, Westpac shares have been strong performers over the past half year. Westpac is currently trading for $26.05 a share, up 23.3% in six months.
Having paid out $1.42 in dividends over the full year, Westpac trades on a fully franked trailing yield of 5.5%.
Which brings us to the third company I'd buy for passive income today, ASX 200 mining stock Fortescue Metals Group Ltd (ASX: FMG).
Fortescue has come under selling pressure in 2024 amid slumping iron ore prices. Still, shares in the ASX 200 miner remain up 24.1% since this time last year, currently trading for $25.33 apiece. And it's looking like the bottom may be in (or at least near) for the iron ore price.
Fortescue paid out $2.08 per share in dividends over the last 12 months. At the recent share price, the mining stock trades on a fully franked trailing yield of 8.2%.
Time in the markets
Now, I won't build my $6,102 passive income stream from my $8,000 investment in ASX 200 shares today.
I'll need a bit of patience and let the magic of compounding work for me.
That means I'll be reinvesting my passive income until I can withdraw $6,102 a year without drawing down my capital.
If I invest the same amount in each of the above ASX 200 shares, I'd earn an average yield of 6.9%, which I think is realistic longer term as well.
This means I'll need an $87,140 ASX passive income portfolio.
How long will that take?
Well, the S&P/ASX 200 Gross Total Return Index (ASX: XJT), which includes all cash dividends reinvested on the ex-dividend date, has returned 17% over the past year. Longer-term the returns have been closer to 11%.
I think I can do a bit better than that and achieve a 12% annual return.
At that rate, my $8,000 investment today will grow to the required $87,140 in 20 years to start withdrawing my $6,102 of annual passive income.
