I’d buy 6 shares a week of this ASX stock for $1800 a year in passive income

Flaming hot inflation and raging interest rate rises are taking their toll on how far the average Aussie earnings can stretch. It’s times like these that passive income from dividend-paying S&P/ASX 200 Index (ASX: XJO) stocks become all the more valuable.

An extra $1,800 each year can go a long way to easing some of the financial strain. Yet, despite a 4% return on cash savings now being a reality, you’d need to stash $45,000 to earn $1,800 annually.

That’s why I’d personally be much more inclined to invest in Australia and New Zealand Banking Group Ltd (ASX: ANZ) instead. The big four bank has filled its shareholders’ pockets with a generous $1.46 worth of fully franked dividends this year.

Notably, the exceptional 6.2% yield is not the product of an abnormally high payout this year. In the last 10 years, ANZ has typically paid between $1.40 to $1.80 in dividends per share.

Out of all the ASX bank stocks, why ANZ?

You might be thinking: ANZ is the only big four bank in the red compared to a year ago, why would you want to invest in it for passive income? To that I say, great question, thanks for asking! So here’s my reasoning…

While it is true ANZ is the worst-performing ASX big four bank stock in the last 12 months, based on its share price — fundamentally it is the best, at least in my eyes.

Compared to a year ago, the smallest member of the major four has dialled up its earnings the most. Net profits increased 15.5% year-on-year, while its peers were hard-pressed to break a 10% clip.

In addition, the potential acquisition of Suncorp could bolster ANZ’s loan book with a further $47 billion in home loans and $11 billion in commercial loans.

Even with the potential upside, ANZ appears to be trading at a discount to its peers. Right now, the price-to-earnings (P/E) ratio on ANZ is hovering around 10 times. Meanwhile, the bigger end of town is fetching between 13 to 18 times earnings.

Paving the way to $1,800 passively

The most important component in this assessment is ANZ’s passive income potential. In the big four landscape, the blue bank offers the biggest dividend yield at 6.2%.

Now, to generate $1,800 per year in income from this dividend investment, one would only need to buy six shares a week over four years — based on the current share price. The table below outlines the journey of a willing investor.

If all went to plan — and ANZ continues to offer a similar dividend — in four years’ time, $1,822 would be flowing in passively.

Earlier in the article, I highlighted how $45,000 would be required to generate the same income. Whereas, the ANZ route would require a more manageable $29,465 investment over four years.

It might still seem like a lot now, but at $142 per week, it quickly adds up. And don’t forget — unlike cash, your initial investment in an ASX stock can appreciate in value over time.

The post I’d buy 6 shares a week of this ASX stock for $1800 a year in passive income appeared first on The Motley Fool Australia.

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More reading

• Here’s how I’d invest $20,000 in ASX 200 shares for a 7% dividend yield
• Can ANZ shares finish the year with a strong performance in December?
• Why did the ANZ share price tumble in November while the ASX 200 gained 6%?
• The 3 best-performing ASX 200 bank shares in November revealed
• The 10 ASX 200 shares responsible for 60% of all Aussie dividends last quarter

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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