How to generate $20k of passive income from BHP shares

Happy man holding Australian dollar notes, representing dividends.

Happy man holding Australian dollar notes, representing dividends.

BHP Group Ltd (ASX: BHP) shares are among the most popular options out there for income investors.

And it isn’t hard to see why countless Australians have the Big Australian in their portfolios.

Every year, the mining giant shares a significant portion of its earnings and free cash flow with its shareholders in the form of dividends.

This has continued in FY 2023, with BHP declaring a fully franked interim dividend of 90 US cents per share. This equates to a payout ratio of 69% and total dividends of US$4.6 billion (A$7 billion).

Let the latter sink in for a second.

Just for its interim dividend, BHP will be paying out more than the combined value of Bendigo and Adelaide Bank Ltd (ASX: BEN) and SKYCITY Entertainment Group Limited (ASX: SKC). And there’s still a final dividend to come later this year!

What would it take to earn $20k from BHP shares?

The good news for income investors is that Goldman Sachs is expecting an even larger dividend in the second half.

It is forecasting a final dividend of US$1.21 per share, bringing its full-year dividend to US$2.11 or A$3.20 per share. Based on the current BHP share price of $45.01, this will mean a sizeable 7.1% yield for investors.

And while its shares have just gone ex-dividend for its interim dividend, let’s still look to see what it would have taken to generate $20,000 from BHP’s shares.

In order to receive $20,000 in passive income, if Goldman’s estimates are correct, you would need to own 6,250 shares. At current prices, this would set you back just over $280,000.

This is clearly a significant investment and not something that most investors would be able to do. However, given time and compounding, there’s nothing stopping you from being able to this in the future.

An investment of $8,000 per year into the share market would turn into $280,000 in 15 years if you generated a 10% per annum return.

And while there’s no guarantee that the share market will deliver a return of that level in the future, it is in line with historical average, so certainly a realistic goal.

The post How to generate $20k of passive income from BHP shares appeared first on The Motley Fool Australia.

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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.

from The Motley Fool Australia

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