If I told you that you could put $10,000 into an ASX dividend share and get $10,000 back every year in passive dividend income, you'd probably be a little sceptical. After all, that would equate to a dividend yield of 100% – something that should be ringing the loudest of alarm bells.
Sure, it's pretty much impossible to find an ASX share that offers a sustainable yield of anything approaching 100% straight up.
However, it is possible to find an ASX share that grows its passive dividend income so consistently that long-term investors may eventually end up getting a 100% yield on their investment cost.
I think one of the best candidates for this scenario is ASX dividend stock Washington H. Soul Pattinson and Co Ltd (ASX: SOL).
Washington H. Soul Pattinson, or Soul Patts for short, is an ASX investment house that has been on our stock market for more than a century. This company started off as a pharmacy chain, but today functions more like a managed fund.
Instead of producing goods or services, Soul Patts manages a huge portfolio of underlying investments on behalf of its shareholders. This portfolio is highly diversified, containing investments ranging from blue-chip ASX shares to private credit and venture capital.
So how would buying $10,000 worth of Soul Patts shares get you 100% of your capital back in annual passive income?
Passive income: Getting out what you put in
Well, to start things off, I haven't picked Soul Patts out of thin air. This company happens to be the most consistent passive income payer on the ASX. It is the only stock on the ASX that has delivered an annual dividend pay rise every year since 2000.
In 2000, the company paid an annual total of 10.5 cents per share in fully franked dividends. But this year, Soul Patts is set to fork out a total of 95 cents per share. That's a 24-year compound annual passive income growth rate of 9.6%.
So let's say an investor bought $10,000 worth of Soul Patts stock at the start of the year 2000 for $2.00 each (the adjusted closing price on 2 January 2000). Back then, this investor would have received a dividend yield of 5.25% for the 10.5 cents per share in dividends received. But if that same investor still owned their 5,000 shares today, they would enjoy a yield-on-cost of 47.5% today based on 2024's payouts.
Now, that's obviously not a 100% yield just yet.
But let's assume Soul Patts continues to grow its annual dividend by that average of 9.6% per annum. If that turns out to be the case, our investor would only have to wait another eight to nine years until Soul Patts is forking out $2.17 per share in annual passive income.
Sure, this whole process would take more than three decades. But it shows that a 100% passive income dividend yield is possible if one picks the right company and maintains their faith in its business model.
