How Much You'd Need to Invest to Earn $10,000pa in Dividends
21 June 2021
So you want to build a portfolio that pays you regular dividend income? We take a look at how much capital you need to earn $5,000, $10,000 or $20,000 a year.
While many Aussies invest in the share market for capital growth there is also a large number who want their investment in shares to give them a regular income in the form of dividends. The question is – how much money do you need to have invested to achieve that?
We asked the Canstar research team to do some number crunching to help give you an idea. For this hypothetical scenario, we have assumed that you would have invested in the top five dividend-paying investments on the ASX (in June 2021). You can see the top five in the table below – with gross dividend yields ranging from 10.3% to 15.12%. AGL Energy (AGL) and Harvey Norman (HVN) both also paid special dividends in the past year, but these were not included in the dividend yields for this scenario.
Interestingly, an exchange-traded fund (ETF) is in second spot. The Vanguard International Fixed Interest Index (Hedged) ETF (ASX: VIF) had a dividend yield of 15.07% over a 12 month period to 15 June, 2021.
Top 5 ASX Investments by Gross Dividend Yield
| Code | Name | Price | Dividend Yield | |
|---|---|---|---|---|
| Net | Gross | |||
| FMG | Fortescue Metals Group Ltd | $23.33 | 10.59% | 15.12% |
| VIF | Vanguard International Fixed Interest INDEX (Hedged) ETF |
$44.50 | 15.07% | 15.07% |
| NCK | Nick Scali Ltd | $10.44 | 8.38% | 11.97% |
| AGL | AGL Energy Ltd | $9.36 | 8.76% | 10.63% |
| HVN | Harvey Norman Holdings Ltd | $5.27 | 7.21% | 10.30% |
Source: www.canstar.com.au. As at market close on 15 June 2021. Based on the Market Index Dividend Scan, with special dividends excluded. Dividend Yield is the annual dividend per share (last 12 months) presented as a percentage of the share price.
After identifying the top five dividend-paying investments on the ASX, the team then did the calculations to show if someone had been invested in these top five dividend-paying stocks over the past year, the lowest total amount invested that was needed in order to earn a certain annual dividend income. This is based on the five investments each accounting for 20% of the portfolio.
As you can see from the table below, to have earned an annual dividend income of $10,000 you would have needed a total of $79,255 invested. Of course, it’s important to remember that past performance is no guarantee of future returns, so this scenario is meant to give you a rough idea of how much you would have needed invested at that time to achieve a certain level of income.
| Annual Dividend Income | Total Investment Amount* |
|---|---|
| $5,000 | $39,637 |
| $10,000 | $79,255 |
| $20,000 | $158,492 |
Source: www.canstar.com.au. As at market close on 15 June 2021. *Based on a target of 20% invested in each of the 5 top dividend-paying equities on the ASX. Total required investment is rounded up to the nearest whole number.
The outlook for dividends
Share dividends took a bit of a hit in 2020. As Michael Price, Portfolio Manager for the Ausbil Active Dividend Income Fund, pointed out, all four major banks, which are among the most sought-after stocks for dividend investors, were forced to cut or suspend dividends in 2020.
Things have started to turn around and Mr Price thinks there is potential for further upside in certain sectors and stocks. “The outlook for dividends is now showing a rebound towards previous levels, which we know will be welcome news to investors in a low-income environment,” he said. “Looking forward, we expect equities to deliver attractive dividends, with yields outstripping those from alternative income sources.”
The team at Janus Henderson is also optimistic that 2021 will be a good year for dividends. The latest Janus Henderson Global Dividend Index said that Australian dividends are set to grow by 40% in 2021 and are likely to reach 85% of their pre-pandemic 2019 levels by the end of the year.
The report noted that mining companies led the recovery in the first quarter of 2021 but banks are catching up. Australian banks are likely to restore dividends to around 70% of their 2019 level with the easing of Reserve Bank limits, according to the report.
Janus Henderson also expects healthy increases from defensive retailers like Coles and Woolworths too, but predicts a number of other companies will find it harder to grow their dividends substantially – and some may pay nothing.
How can you calculate dividend yield?
The dividend yield indicates the relationship between how much a company pays in dividends each year and its share price. This ratio, which is expressed as a percentage, can tell an investor how much the company’s previous dividend payments were in comparison to the current price. The calculations is: dividend per share/ price per share.
Compare Online Share Trading Platforms
→ Related: 3 experts pick their ASX dividend stocks to watch for in 2022
Main image source: Ciurea Adrian /Shutterstock.com
Thanks for visiting Canstar, Australia’s biggest financial comparison site*
This article was reviewed by our Editor-at-Large Effie Zahos before it was updated, as part of our fact-checking process.
Try our Investor Hub comparison tool to instantly compare Canstar expert rated options.
