Dividend stocks: Why I’m buying now for supercharged and long-lasting passive income

A broad range of ASX dividend stocks pay attractive dividend yields to investors. I’m using the difficult period for investment markets we’re currently in to supercharge my long-term passive dividend income.

I think ASX dividend shares are a great way to grow wealth over the long term. Companies can pay and boost dividends and achieve strong price growth if the profit grows over time.

The current economic period appears particularly compelling to invest in due to the lower share prices in general across the ASX share market.

Better yields

A dividend yield can be heavily affected by movements in the short term.

If an ASX dividend stock has a dividend yield of 5%, but then the share price drops 20%, the dividend yield turns into 6%.

Think about how much of a difference that could make if someone was going to invest $1 million of cash. At a 5% yield, it would generate an income of $50,000. With a 6% yield, it makes $60,000 in income. That’s an extra $10,000 of income from the same investment just because the valuation has dropped.

The Wesfarmers Ltd (ASX: WES) share price is a good example of this. It has dropped by more than 25% since its peak in August 2021. According to Commsec, the company could pay a grossed-up dividend yield of 5.5% in FY23.

With investors pushing down share prices amid strong inflation and higher interest rates, we currently have the opportunity to invest in companies that are now paying much better yields, assuming the dividend isn’t cut. It’s a good chance to boost my passive dividend income.

Why I’m investing in ASX dividend stocks now

It’s not often that quality names like Wesfarmers fall by 20% or more.

But I don’t think that investor pessimism is going to stick around forever. At some point, the US central bank will stop raising interest rates. In 2024, there might even be interest rate cuts.

I generally believe that the share prices of good businesses will start going up again. This will have the effect of pushing down dividend yields a bit.

For example, if a business with a dividend yield of 6% sees a 10% rise in the share price, then the dividend yield is reduced to 5.4% — at least until the company increases the dividend payment for shareholders.

In the long term, I think investing at these lower prices can also give us a greater chance of achieving capital growth, on top of boosting passive income.

Recent examples of names that I’ve invested in at a lower share price for a bigger dividend yield include Brickworks Limited (ASX: BKW) and Bailador Technology Investments Ltd (ASX: BTI).

I think the lower share prices of APA Group (ASX: APA), Wesfarmers, Sonic Healthcare Ltd (ASX: SHL) and Brickworks are all attractive contenders for good dividend growth in the coming years while offering solid yield today.

The post Dividend stocks: Why I’m buying now for supercharged and long-lasting passive income appeared first on The Motley Fool Australia.

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More reading

• Why have ASX investors been buying Wesfarmers shares to hold?
• My 3 best ASX shares of 2022 – and why I think they’ll win again in 2023
• Want 17% upside plus dividend income? Broker says buy Wesfarmers shares
• My top predictions for ASX 200 shares in 2023
• How different is the Vanguard Australian Shares Index ETF (VAS) now compared to a year ago?

Motley Fool contributor Tristan Harrison has positions in Bailador Technology Investments and Brickworks. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bailador Technology Investments and Brickworks. The Motley Fool Australia has positions in and has recommended Apa Group, Brickworks, and Wesfarmers. The Motley Fool Australia has recommended Bailador Technology Investments and Sonic Healthcare. 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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