Dividend shares can be a great source of passive income. And I think the AI-fuelled rally in tech stocks is presenting buying opportunities in other areas.
I’ve been adding to my stakes in two dividend stocks lately. And I’m planning on continuing to do so if prices stay where they are.
Aviva
I’ve been adding to my investment in Aviva (LSE:AV.B) shares. I’m not talking about the common stock, though – I own the preferred equity.
Right now, the dividend yield on the preferred stock is 7.21%, compared to 7.69% for the common equity. Furthermore, the preferred dividend is fixed and isn’t going to grow over time.
So why am I buying the shares with the lower return? The answer is stability.
From an income perspective, there’s always a risk dividends can be lowered or suspended entirely. But that risk is significantly lower with preferred shares.
With the way Aviva’s shares are structured, it can reduce or suspend its common equity dividends while still paying dividends to preferred shareholders. But the reverse isn’t true.
Aviva can pay dividends to common shareholders only once it has paid dividends to owners of its preferred shares. That means the preferred stock is less risky from an income perspective.
When comparing a 7.21% dividend with a 7.69% dividend, I think the lower current yield is worth the reduced (but still present) risk. That’s why I’ve been adding to my stake in Aviva’s preferred shares.
Kraft Heinz
The other stock I’ve been buying is Kraft Heinz (NASDAQ:KHC). The stock is listed in the US, which isn’t ideal, but I’m a believer in casting a wide net when it comes to looking for stocks to buy.
Since it has nothing to do with AI, investors have been going off the stock. That’s fine by me – I’m very happy buying shares at lower prices.
The stock might be out of fashion, but demand for the packaged food company’s products is still pretty solid. At its last earnings report, it announced a 7.3% increase in sales.
That’s not a big surprise – people don’t stop eating even when there might be a recession coming. But of the big food companies, I think Kraft Heinz has the most potential.
At the moment, the stock has a dividend yield of 4.3%. And while that hasn’t increased for a few years, I see potential for higher returns in the future.
One reason for this is inflation is starting to subside in both the UK and the US. While Kraft Heinz has some ability to pass this on, it has been weighing on margins to a degree.
Another reason is the company’s balance sheet is improving. With debt coming down, I think there might be scope for additional returns in future either via dividends or share buybacks.
Dividend stocks
As investors see potential in AI stocks like Microsoft and Nvidia, prices elsewhere are becoming more attractive. I think there are a number of good opportunities in dividend shares right now.
With Aviva and Kraft Heinz, I I have two investments that I expect to provide me with passive income for a long time to come. That’s why I’ve been buying them recently.
