When you first start investing, the prospect of eventually building a million-dollar portfolio might seem impossible. However, history shows that it is possible to do so by investing in ASX shares.

How many shares? Many experts suggest a portfolio of 20 to 30 shares spread out across various industries is optimal for diversification. That’s because having this number decreases company or industry-specific risk by ensuring that no single company or industry has too much influence over the value of your holdings.

However, investors could get away by buying only a handful of ASX shares if they take advantage of the diversification offered by exchange traded funds (ETFs). For example, the Vanguard MSCI Index International Shares ETF (ASX: VGS) gives investors exposure to 1,467 of the world’s largest listed companies from major developed countries. That’s about as diverse as it gets.

If you owned an ETF like this, you could potentially snap up just a few high quality ASX shares to make a really strong portfolio.

But how do you make a million?

If you’re just starting out and have time on your side, then investing with a long-term view could be the key to making a million.

If you’re able to invest $5,000 into ASX shares each year and earn a 9.6% per annum return, then you would turn those investments into $1 million after just over 30 years. If you can afford to add more as you get older and your wage (hopefully) increases, you’ll get there even earlier.

Why 9.6%? Well, that’s the return that Australian shares have provided investors with over the last 30 years according to Fidelity. And while there’s no guarantee that the market will do the same over the next 30 years, this level of return is largely in line with historical averages.

If you’re starting when older, you’ll just need to begin with a greater amount of capital and make slightly larger annual contributions to reach your goal.

Starting with $150,000 and making $10,000 annual investments will take a little over 15 years to reach $1 million if you’re earning a 9.6% per annum return.

All in all, being a share market millionaire is not impossible, particularly if you have a plan and stick to it.

The post I’d aim for a $1 million by buying just a handful of ASX shares appeared first on The Motley Fool Australia.

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More reading

• Stock market correction: How I’m using this opportunity to build wealth with ASX shares
• 3 reasons to buy the Vanguard MSCI Index International Shares ETF (VGS) before 2023
• If I was 40 and had never invested, here’s how I’d aim to build a $500,000 ASX share portfolio
• This simple investing plan could save the retirement plans of millions of retail investors
• One ASX ETF that could make you a stock market millionaire with little to no effort

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Vanguard Msci Index International Shares ETF. The Motley Fool Australia has recommended Vanguard Msci Index International Shares ETF. 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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If you’re anything like me, your back pocket will be feeling a little lighter after yesterday’s festivities. Fortunately, I have a way to lessen the load a little next year without breaking the bank. If my New Year’s resolution was to build a passive income, but I only had $75 a month to spare, here’s how I would work to achieve it with ASX dividend shares.

Key considerations

Consistency is key when it comes to building an income stream. Just like most of us receive an income by attending jobs most days, an investor building a passive income should turn up for their investments.

That might mean setting a monthly reminder to invest a set amount or creating an automatic transfer into an investing account.

Speaking of investing accounts, if I was only adding $75 a month to my portfolio, I would be extra cautious of associated fees so to make the most of my money. Thus, I would shop around to find the best brokerage for my needs.

Finding ASX dividend shares to invest in

With those simple tasks ticked off my to-do list, I would turn my attention to finding ASX dividend shares to invest in.

Buying dividend shares is generally the same as buying any other stock. I would still consider a company’s growth prospects, its competitive advantages and disadvantages, and its balance sheet to assess its strengths and weaknesses.

However, I would likely pay closer attention to an ASX dividend shares’ profits, and where those profits are coming from. The ideal dividend stock would have consistent notable cash flow and a good debt position, in my opinion, giving them a strong base from which to pay dividends.

I would also consider a company’s dividend history. A green flag might be one that has previously prioritised payments to shareholders during hard times. Though, whether that was a smart financial move might also need to be analysed.

Finally, I would look at an ASX share’s dividend yield. That measures the amount a company pays out compared to its share price.

How to manage risks with ASX dividend shares

One might think investing in a company with a massive dividend yield is the best use of $75 each month. However, I always prefer sustainable yields over high ones.

Such sustainability is probably particularly important if I were investing just $75 a month, as my risk tolerance would likely be modest.

Speaking of risks, I would also aim to build a diverse portfolio, thereby reducing some of the risks investing can bring.

Though, it’s important to note no investment is guaranteed to provide either returns, dividends, or even downside protection, no matter how considered it is.

Looking to the future

Investing $75 a month likely won’t build a million-dollar a year passive income by next Christmas.

Indeed, that monthly contribution would equal a $900 annual investment – which would be capable of paying out $45 a year on a 5% dividend yield.

But I believe $75 a month is still a good place to start. The market has historically always gone up. Therefore, building a portfolio over time is, in my opinion, far better than not building one at all.

The post How I’d target passive income by investing $75 a month in ASX dividend shares appeared first on The Motley Fool Australia.

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More reading

• I’d aim for a $1 million by buying just a handful of ASX shares
• I’m listening to Warren Buffett and buying cheap ASX shares
• Will the BHP dividend in 2023 be bigger than last year?
• 5 ASX lithium stocks to buy in 2023: brokers
• Here’s my verdict on the CBA share price right now

Motley Fool contributor Brooke Cooper 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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One of the world’s most famous investors is Warren Buffett.

The Oracle of Omaha has earned his legendary reputation after generating consistently strong returns for Berkshire Hathaway over multiples decades.

For example, according to Buffett’s most recent annual letter, Berkshire Hathaway’s market value per share has increased by an average of 20.1% per annum from 1965 to 2021. This is almost double the return of the S&P 500 index, including dividends, which has returned an average of 10.5% per annum over the same period.

Impressively, this means that Berkshire Hathaway has returned a whopping 3,641,613% over the 56 years. This would have turned a single dollar investment into over $3.5 million today.

In light of this, when Buffett speaks, it certainly can pay (almost literally) to listen.

Buy quality cheap ASX shares

Buffett is well known to take advantage of the type of market volatility we have experienced this year. He famously quipped:

Be fearful when others are greedy and be greedy when others are fearful.

The good news is that because of inflation and recession fears, there are a good number of cheap-looking shares on the ASX.

However, Buffett doesn’t buy shares just because they look cheap, he buys them when he feels they are trading at a discount to their underlying value.

This means don’t just buy a share because it has dropped 80% this year and you think it will rebound. There could be a reason why that decline has happened and there could be more to come. You could ultimately end up trying to catch a falling knife.

Instead, investors should look for ASX shares that have been sold off but still have strong business models and equally strong outlooks. Buffett explained in his 2014 letter:

[T]hough marginal businesses purchased at cheap prices may be attractive as short-term investments, they are the wrong foundation on which to build a large and enduring enterprise. Selecting a marriage partner clearly requires more demanding criteria than does dating.

This statement echoes something Buffett said in his 1994 letter that could be particularly apt for investors looking for cheap ASX shares. He said:

In my early days as a manager I, too, dated a few toads. They were cheap dates – I’ve never been much of a sport – but my results matched those of acquirers who courted higher-priced toads.  I kissed and they croaked. After several failures of this type, I finally remembered some useful advice I once got from a golf pro (who, like all pros who have had anything to do with my game, wishes to remain anonymous).  Said the pro:  “Practice doesn’t make perfect; practice makes permanent.”  And thereafter I revised my strategy and tried to buy good businesses at fair prices rather than fair businesses at good prices.

The post I’m listening to Warren Buffett and buying cheap ASX shares appeared first on The Motley Fool Australia.

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More reading

• A recession could be coming in 2023. Here’s Warren Buffett’s investing advice
• Is it safe to invest in ASX shares now? Take advice from Warren Buffett
• Almost ready to retire? I’d follow Warren Buffett’s tips to enjoy a growing passive income from ASX dividend shares
• One Warren Buffett-style stock I’m ‘never’ selling
• I’d aim for a million by buying just a few ASX shares

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. 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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The BHP Group Ltd (ASX: BHP) share price has seen plenty of volatility during 2023. But, will the company’s dividend payout be volatile as well?

Shares in the ASX 200 diversified miner have climbed around 9% this year, despite the craziness that has hit the broader ASX share market amid higher interest rates and strong inflation.

Profits and dividends don’t typically change as much or as rapidly as share prices do. It can also take some time for economic effects to flow through.

BHP intends to pay at least 50% of its net profit each year to shareholders, so positive or negative impacts on profit will affect the BHP dividend.

Dividend expectations

Commsec projections suggest that BHP could generate A$4.39 of earnings per share (EPS) and then pay an annual dividend per share of A$3.16.

In FY22, it paid total cash dividends of US$3.25 per share, which was a dividend payout ratio of 77%. In Australian dollar terms, it paid A$4.63 per share, according to the ASX.

What this suggests is that the BHP annual dividend could be cut by around 32% in FY23.

What’s going on with BHP shares?

BHP has a number of operating commodities, including iron ore, copper, nickel and coal.

The price of each commodity moves up and down, but what happens with iron ore is particularly important because, over the last few years, it has been that division that has generated the lion’s share of the earnings before interest and tax (EBIT).

In the first quarter of FY23, iron ore production increased 3% year over year to 65.1 mt.

However, the problem is that some commodities had been seeing deteriorating prices in the first half of FY23.

But, there is a chance that estimates could be revised higher if the current iron ore price is maintained or even increases over the rest of FY23. According to Commsec, the iron ore futures price was US$110 per tonne on 23 December 2022.

Another factor that could influence the BHP dividend in FY23 is the company’s acquisition of OZ Minerals Limited (ASX: OZL). This could boost the company’s copper earnings, but it also comes at an enterprise value of $9.6 billion, which will be funded by BHP’s balance sheet, with both cash and debt.

It will be interesting to see what BHP’s dividend payout ratio is for FY23 after using A$9.6 billion of its financial capacity.

However, BHP will no doubt be hoping that the expected synergies can boost future profits and dividends.

The post Will the BHP dividend in 2023 be bigger than last year? appeared first on The Motley Fool Australia.

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More reading

• Yields of up to 7%… 3 ASX dividend shares I’d buy to hold for 10 years
• 2 reasons to buy BHP shares before 2023 (and 2 reasons to sell)
• BHP share price higher on OZ Minerals $9.6b takeover agreement
• BHP shares ‘look expensive’: broker
• Could copper become ‘the lithium’ of 2023?

Motley Fool contributor Tristan Harrison 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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