For many investors, replacing a traditional wage with a dependable and growing passive income is a key financial goal.

While it takes time and a lot of effort, constructing a robust income stream through dividend-paying ASX shares is achievable. Let's find out how it could be done.

Finding opportunities in dividend stocks

Despite the Australian share market rallying to a record high in 2024, it is still possible to find ASX dividend shares that offer high dividend yields.

For example, as covered here, Eagers Automotive Ltd (ASX: APE) and IPH Ltd (ASX: IPH) have dividend yields that are far beyond the market average. They are also trading comfortably below fair value according to brokers, which means that they could offer market-beating total returns in 2025.

So, if you already have a lot of capital to put into the market, investing in companies like these means you are halfway to generating meaningful passive income already.

However, it is important to remember that replacing a full wage with dividends requires considerable capital. Most investors won't be able to achieve this goal overnight.

Skip dividend shares

It might seem counterintuitive to avoid ASX dividend shares when you are investing for passive income, but early on in your journey it could be the smart thing to do.

While some dividend shares do deliver strong returns for investors, it is more often companies that don't pay dividends (or offer slender yields) that perform best. Think companies such as Xero Ltd (ASX: XRO) and WiseTech Global Ltd (ASX: WTC).

Investors could consider investing in growth companies with strong business models and sustainable competitive advantages to increase their wealth.

And when their portfolio becomes large enough to start generating income from, they can change its focus and watch the money come flooding in.

As I mentioned here, if you were to start with a $10,000 investment and then invested $1,000 per month into ASX shares, you would have a million-dollar portfolio in under 23 years.

After which, if you were to build a portfolio that averages a 6% dividend yield, you would be generating $60,000 in passive income each year (and growing).

If you require more passive income, simply continue the previous process for a year or more to grow your portfolio further before changing its focus to income.

Overall, with disciplined investing and a focus on high-quality ASX shares, you can gradually build a sizeable passive income.