If you’re keen to invest in ASX dividend shares to begin earning some handy passive income alongside potential share price gains, you don’t need a whole heap of cash to begin.

In fact, you can start building your regular passive income stream with just $5 a day.

Here’s how I’d go about it.

You don’t need a fortune to begin earning a passive income

First, I’d set aside that $5 each day to invest in fully franked S&P/ASX 200 Index (ASX: XJO) dividend shares.

I’d stick with ASX 200 stocks for a few reasons. Namely, they tend to be less volatile, there’s more readily available research on their performance and outlook, and many have a long track record of making two dividend payouts each year.

All good boxes to tick for that reliable passive income I’m after.

I’d also stick with the fully franked ASX dividend stocks. That’s because I want the 30% tax credit from what the companies have already paid on their profits when it comes my time to give the ATO their pound of flesh.

And the reason I’m setting aside $5 each day rather than immediately investing it into ASX dividend shares mostly boils down to brokerage fees.

On the online trading account I use, I pay $10 for every transaction less than $1,000.

So, to keep those fees from eating into the passive income I’m after, I’d wait at least 60 days between making new investments, so I could buy at least $300 worth of shares at a time.

Which ASX 200 dividend shares to target?

There are a large number of ASX 200 dividend shares paying juicy, fully franked trailing yields.

Do be aware, though, that those trailing yields are derived from the past 12 months of payouts. Future yields may be higher or lower, depending on a range of company-specific and wider macroeconomic factors.

With that said, I’d begin to build my passive income portfolio by spreading my investments across at least three stocks operating in three different sectors.

As my portfolio grows in value I’d look to expand both the number of stocks and the sectors they operate in. That greater diversity will help reduce my overall risk they all turn down together.

So, up first we have JB Hi-Fi Ltd (ASX: JBH).

The ASX 200 consumer discretionary share paid out a record interim dividend of $1.97 per share on 3 October. Together with the final dividend of $1.53, paid on September 9, that works out to a full-year payout of $3.50 per share.

At the current JB Hi-Fi share price of $45.13, that equates to a trailing yield of 7.8%.

Next, I’d look to Woodside Energy Group Ltd (ASX: WDS) to bulk up that passive income stream.

The ASX 200 oil and gas stock delivered a record $2.154 final dividend, paid on 5 April. Together with the interim dividend of $1.60, that equates to a full-year payout of $3.754 per share.

At the current Woodside share price of $35.14 per share, that works out to a trailing yield of 10.7%.

And the third stock I’d target for passive income with my $5 a day is Australia and New Zealand Banking Group Ltd (ASX: ANZ).

The ASX 200 bank stock paid a final dividend of 74 cents per share on 15 December and declared an interim dividend of 81 cents per share. ANZ shares traded ex-dividend last Monday, 15 May. Eligible shareholders will see the interim dividend land in their bank accounts on 3 July.

With a total 12-month payout of $1.55 and currently trading for $23.76 per share, ANZ trades on a fully franked trailing yield of 6.5%.

By investing just $5 a day I’ll have invested $1,825 by the end of the first year (minus some modest brokerage fees).

If I split that evenly between these three stocks I’d earn a yield of 8.33%.

Or a handy $152 in annual passive income from my daily $5 investments, with potential tax benefits.

And, of course, I’ve also aimed to choose stocks that will see their share prices go higher atop those juicy dividend returns.

The post Here’s how I’d start earning passive income by investing $5 a day in ASX shares appeared first on The Motley Fool Australia.

(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;
}
}

setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()

More reading

• Which ASX 200 bank shares were just downgraded by Morgan Stanley?
• ASX 200 energy shares charging higher as G7 nations stress ‘important role’ of gas
• Woodside share price lifts as Germany flags need for ‘new gas power stations’
• Here’s what ANZ’s iron ore forecast could mean for the BHP share price in 2023
• Are Woodside shares the greatest dividend buy of the ASX 200?

Bernd Struben 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 recommended Jb Hi-Fi. 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 https://ift.tt/MI4JG2N

• Stock Market