Last week, Commonwealth Bank of Australia (ASX: CBA) released its half year results and revealed just how much rising interest rates are boosting its profits.
For the six months ended 31 December, CBA reported a 12% increase in operating income to $13,593 million and a 9% lift in cash earnings to $5,153 million.
This allowed the CBA board to increase its interim dividend by 20% year over year to a fully franked $2.10 per share.
The good news is that its final dividend is forecast to be even larger. According to a note out of Morgans, its analysts expect a fully franked final dividend of $2.40 per share, bringing the total dividends to $4.50 per share.
Based on where CBA shares are currently trading, this will mean a fully franked 4.5% yield for investors.
How to generate a $20,000 second income from CBA shares
If Morgans is on the money with its forecast, for a $20,000 second income you would need to own approximately 4,444 CBA shares.
Unfortunately, this would come at some cost for investors.
CBA shares are currently fetching $100.97. This means you would need to invest approximately $450,000 to yield the desired amount.
The long way
What if you donât have $450,000 to invest? Well, donât rule out being able to achieve this goal in the future.
The share market has generated a return of 10% per annum historically. With that in mind, making consistent investments into a balanced portfolio of high quality ASX shares could get you to $450,000 sooner than you might think.
The market is of course not guaranteed to generate a 10% per annum return in the future, but if it were to deliver returns in line with historical averages and your portfolio matched it, investing $10,000 per year would grow into $450,000 in 17 years.
Once it gets to that point, you could then switch your focus to income and build a portfolio yielding 4.5% to receive a $20,000 second income without lifting a finger.
The key is to have a plan, stick to it, and let compounding work its magic.
The post How I’d generate a $20,000 second income from CBA shares appeared first on The Motley Fool Australia.
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More reading
- CBA shares ‘do not look cheap’ despite recent selloff: broker
- Passive income watch: 3 ASX 200 shares that announced boosted dividends this week
- Is the CBA share price a buy following Wednesday’s 5% fall?
- Earnings preview: Here are the ASX shares reporting on Thursday
- 5 things to watch on the ASX 200 on Thursday
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 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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